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<SEC-DOCUMENT>/in/edgar/work/20000823/0000897069-00-000433/0000897069-00-000433.txt : 20000922
<SEC-HEADER>0000897069-00-000433.hdr.sgml : 20000922
ACCESSION NUMBER:		0000897069-00-000433
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		5
CONFORMED PERIOD OF REPORT:	20000525
FILED AS OF DATE:		20000823

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			MARCUS CORP
		CENTRAL INDEX KEY:			0000062234
		STANDARD INDUSTRIAL CLASSIFICATION:	 [7011
]		IRS NUMBER:				391139844
		STATE OF INCORPORATION:			WI
		FISCAL YEAR END:			0527
</COMPANY-DATA>

		FILING VALUES:
			FORM TYPE:		10-K
			SEC ACT:		
			SEC FILE NUMBER:	001-12604
			FILM NUMBER:		708478
</FILING-VALUES>

			BUSINESS ADDRESS:	
				STREET 1:		250 EAST WISCONSIN AVE
				STREET 2:		SUITE 1700
				CITY:			MILWAUKEE
				STATE:			WI
				ZIP:			53202-4220
				BUSINESS PHONE:		4142726020
</BUSINESS-ADDRESS>

				MAIL ADDRESS:	
					STREET 1:		250 EAST WISCONSIN AVENUE
					STREET 2:		STE 1700
					CITY:			MILWAUKEE
					STATE:			WI
					ZIP:			53202-4220
</MAIL-ADDRESS>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>FORM 10-K
<TEXT>

                                    FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

|X|      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         For the fiscal year ended May 25, 2000

         OR

|_|      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         For the transition period from ________ to  ________

                         Commission file number 1-12604

                             THE MARCUS CORPORATION
                           (Exact name of registrant)

                  Wisconsin                                 39-1139844
       (State or other jurisdiction of                   (I.R.S. Employer
        incorporation or organization)                  Identification No.)

    250 East Wisconsin Avenue - Suite 1700                  53202-4220
             Milwaukee, Wisconsin                           (Zip Code)
   (Address of principal executive offices)

Registrant's telephone number, including area code: (414) 905-1000 Securities
registered pursuant to Section 12(b) of the Act:

     Common Stock, $1 par value             New York Stock Exchange
     --------------------------             -----------------------
         (Title of class)               (Name of exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
                            Yes|X|               No|_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |_|

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant as of August 11, 2000: $275,292,023.

Number of shares outstanding of each of the classes of the registrant's capital
stock as of August 11, 2000:

                  Common Stock, $1 par value: 17,368,976 shares
              Class B Common Stock, $1 par value: 11,900,760 shares

                      DOCUMENTS INCORPORATED BY REFERENCE:

2000 Annual Report to Shareholders (incorporated by reference into Parts I, II
and IV); Proxy Statement for 2000 Annual Meeting of Shareholders (to be filed
with the Commission under Regulation 14A within 120 days after the end of the
registrant's fiscal year and, upon such filing, to be incorporated by reference
into Part III).

<PAGE>
                                     PART I

                Special Note Regarding Forward-Looking Statements

       Certain matters discussed in this Annual Report on Form 10-K are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements may generally be identified as such because the
context of such statements will include words such as the Company "believes,"
"anticipates," "expects" or words of similar import. Similarly, statements that
describe the Company's future plans, objectives or goals are also
forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties, including, but not limited to, the following:
(i) the Company's ability to identify properties to acquire, develop and/or
manage and continuing availability of funds for such development; (ii) the
Company's ability to attract potential partners to assist in the acquisition
and/or development of properties; (iii) the limited-service lodging division's
ability to attract and retain quality franchise operators and to effectively
execute its Baymont repositioning strategy; (iv) continuing consumer demand as a
result of general economic conditions with respect to the hotels and resorts and
limited-service lodging divisions; (v) continuing availability, in terms of both
quality and quantity, of films for the theatre division; and (vi) competitive
conditions in the markets served by the Company. Shareholders, potential
investors and other readers are urged to consider these factors carefully in
evaluating the forward-looking statements and are cautioned not to place undue
reliance on such forward-looking statements. The forward-looking statements made
herein are made only as of the date of this Form 10-K and the Company undertakes
no obligation to publicly update such forward-looking statements to reflect
subsequent events or circumstances.

Item 1.  Business.

       The Marcus Corporation through its subsidiaries (collectively, the
"Company") is primarily engaged in three business segments: limited-service
lodging; movie theatres; and hotels and resorts. As a result of the Company's
stated intention to dispose of its KFC restaurants, the Company's restaurant
business segment has been presented as discontinued operations in the Company's
financial statements.

       The Company's limited-service lodging operations include a chain of 171
Baymont Inns & Suites limited-service facilities in 30 states and seven
Woodfield Suites all-suite hotels in Wisconsin, Colorado, Ohio, Illinois and
Texas. Of the 171 Baymont Inns & Suites, 86 are owned or operated by the
Company, nine are operated under joint venture agreements and 76 are franchised.

       The Company operates 50 movie theatres with an aggregate of 470 screens
throughout Wisconsin, Ohio, Illinois and Minnesota. The Company also operates a
family entertainment center, Funset Boulevard, in Appleton, Wisconsin.

       The Company's hotel and resort operations include the Pfister Hotel and
the Hilton Milwaukee City Center, which are full-service hotels in Milwaukee,
Wisconsin, and the Grand Geneva Resort & Spa and the Miramonte Resort, which are
full-facility destination resorts in Lake Geneva, Wisconsin and Indian Wells,
California, respectively. In May 2000, the Company


                                      -1-
<PAGE>

purchased the Hotel Phillips, a downtown Kansas City, Missouri landmark hotel.
The Company also manages three hotels for third parties: the Hotel Mead in
Wisconsin Rapids, Wisconsin, the Crowne-Plaza Northstar in Minneapolis,
Minnesota and Beverly Garland's Holiday Inn in North Hollywood, California.

       The Company's restaurant division includes 27 KFC (Kentucky Fried
Chicken) restaurants and three KFC/Taco Bell 2-in-1 restaurants in Wisconsin,
which the Company announced its intention to sell in September 1999.

       The Company's current expansion plans include the following goals:

       o      Continuing to define and build the Baymont Inns & Suites brand,
              with a goal to be the "best in class" in the mid-price without
              food and beverage segment of the lodging industry. The Company
              currently believes that most of its anticipated future growth will
              ultimately come from its emphasis on opening new franchised
              Baymont Inns and Baymont Inns & Suites. As of the end of fiscal
              2000, one new Company-owned and 26 new franchised properties were
              under development, the majority of which are expected to open
              during fiscal 2001. The Company currently believes that it will
              add 25 to 35 new franchised properties per year over the next few
              years. By emphasizing franchising, the Company believes the
              Baymont brand may grow more rapidly, conserving capital for other
              strategic purposes within the Company. In addition to the
              development of new franchised properties, the Company plans to
              further emphasize franchising in the future by exploring the
              potential sale of approximately 20 Company-owned properties to new
              and existing franchisees over the next three years, with the
              Company possibly retaining a management contract in some cases.
              The Company also anticipates exploring additional growth of the
              Baymont brand through potential acquisitions and joint venture
              investments.

       o      Reaching its target of 500 movie theatre screens during fiscal
              2001. The Company plans to open up to 36 new screens during fiscal
              2001, including 19 new screens to be added to existing locations
              in Wisconsin, Illinois and Minnesota. The Company's second large
              UltraScreen(TM) opened in June 2000 at a Madison, Wisconsin
              location. The Company also has plans to complete its stadium
              seating retrofit program, resulting in stadium seating in
              approximately 90% of its first-run screens by the end of 2001.

       o      Increasing the number of rooms managed by the hotel and resort
              division to 10,000 rooms over the next five years, either
              Company-owned or managed for others. The Company anticipates that
              the majority of this growth will come from management contracts
              for other owners. In some cases, the Company may own a partial
              interest in the new properties. The Company opened an extensive
              addition to the Hilton Milwaukee City Center in June 2000. In
              addition, the Company currently has two Company-owned projects
              under construction or in development: the Hilton Madison at Monona
              Terrace - a 238-room public/private endeavor with the City of
              Madison, Wisconsin scheduled to open late in fiscal 2001; and the
              Hotel Phillips - a 240-room public/private project in Kansas City,
              Missouri. The Company purchased


                                      -2-
<PAGE>

              the Hotel Phillips in May 2000 and currently plans to close the
              property this fall in order to undertake a complete restoration of
              this landmark property.

       o      Evaluating additional growth opportunities. The Company opened its
              seventh Woodfield Suites during fiscal 2000 and is evaluating
              additional sites and franchising opportunities. The Company began
              selling units of a vacation ownership development at the Grand
              Geneva Resort & Spa during fiscal 2000 and recently opened its
              first 18 units and a sales center, representing the Company's
              entrance into the timesharing business. The Company expects to
              continue growing this business in fiscal 2001 and beyond.

       The actual number, mix and timing of potential future new facilities and
expansions will depend in large part on continuing favorable industry and
economic conditions, the Company's financial performance and available capital,
the competitive environment, evolving customer needs and trends, customer
acceptance of the new Baymont brand, the Company's ability to increase the
number of franchised locations at a pace faster than that achieved under the
Budgetel name and the continued availability of attractive opportunities. It is
likely that the Company's expansion goals will continue to evolve and change in
response to these and other factors with no assurance that these current goals
will be achieved.

Business Segment Data

       Certain business segment data for the Company's three most recent fiscal
years relating to the Company's three industry segments is set forth in footnote
12 to the Notes to Consolidated Financial Statements included on Page 28 of the
Company's 2000 Annual Report to Shareholders, which pages are incorporated by
reference herein.

Limited-Service Lodging Operations

Baymont Inns & Suites

       The Company owns, operates or franchises 171 limited-service facilities,
with over 16,000 available rooms, under the names "Baymont Inns" and "Baymont
Inns & Suites" in 30 states. Of this total, 76 Baymont Inns & Suites are
operated by franchisees, 86 are Company-owned or operated and nine are operated
under joint venture agreements. During fiscal 2000, 14 new franchised properties
were opened, with an additional 26 new franchised properties and one new
Company-owned property under construction or in development at fiscal year-end.
During fiscal 2000, the Company sold four Baymont Inns & Suites, including one
to a franchisee.

       Targeted at the business traveler, Baymont Inns & Suites feature an
upscale, contemporary exterior appearance, are generally located in high traffic
commercial areas in close proximity to interstate highway exits and major
thoroughfares and vary in size between 57 and 191 rooms. The Company believes
that providing amenities typically associated with full-service hotels
distinguishes Baymont Inns & Suites from many of its competitors. These
amenities include executive conference centers, king-sized beds, free local
telephone calls, incoming fax transmissions, non-smoking rooms, in-room coffee
makers, remote control cable televisions, extra-long telephone cords and large
working desks. Additional amenities that have been introduced


                                      -3-
<PAGE>

include lobby breakfasts, two-room suites, 25-inch televisions, fitness
facilities, voice mail, hair dryers, irons and ironing boards, complimentary
copies of USA Today and high speed Internet access. To enhance customer
security, all Baymont Inns & Suites feature "card key" room locking systems and
provide well-lighted parking areas and all-night front desk staffing. The
interior of each Baymont Inns & Suites is refurbished in accordance with a
strict periodic schedule.

       Baymont Inns & Suites has a national franchise program and has increased
its emphasis on opening more franchised Baymont Inns & Suites. Sales offices in
Wisconsin, Texas, Florida, Tennessee, South Dakota, New Jersey and Oregon and
service offices in Florida and Tennessee are intended to help support expansion
of the Baymont Inns & Suites franchise. Franchisees pay an initial franchise fee
and annual marketing assessments, reservation system assessments and royalty
fees based on room revenues. The Company is qualified to sell, and anticipates
ultimately selling, franchises in all 50 states. The Company plans to further
emphasize franchising in the future by exploring the potential sale of
approximately 20 Company-owned properties to new and existing franchisees over
the next three years as a part of the Company's strategy to emphasize growth
through franchising. In some cases, the Company may continue to manage a sold
property for a new owner under the terms of a management contract. The Company
believes that the sale of selected properties will allow its franchise partners
to develop a significant market presence and the Company to use the proceeds
from such sales for other growth opportunities, including developing Baymont
properties in new markets.

Woodfield Suites

       The Company operates seven mid-priced, all-suite hotels under the name
"Woodfield Suites" in Illinois, Wisconsin, Colorado, Ohio and Texas. In fiscal
2000, the Company opened a new Company-owned property near the River Walk in San
Antonio, Texas.

       Woodfield Suites offers all of its guests the use of a centrally-located
swimming pool, whirlpool and game room. Most suites have a bedroom and separate
living room and feature an extra-length bed, sleeper sofa for additional guests,
microwave, refrigerator, wet bar, television and hair dryer. Some suites also
have a kitchenette. All guests receive a complimentary continental breakfast and
are invited to a complimentary cocktail hour. Meeting rooms and two-line
telephones equipped with dataports in every suite enhance Woodfield Suites'
appeal to business travelers. Woodfield Suites is installing high speed Internet
access to all properties.

Hotels and Resorts Operations

The Pfister Hotel

       The Company owns and operates the Pfister Hotel in downtown Milwaukee.
The Pfister Hotel, a full service, luxury hotel, has 307 rooms (including 82
luxury suites), three restaurants, two cocktail lounges (one of which was
recently opened) and a 275-car parking ramp. The Pfister has 24,000 square feet
of banquet and convention facilities. Banquet and meeting rooms accommodate up
to 3,000 persons, and the hotel features two large ballrooms, including one of
the largest ballrooms in the Milwaukee metropolitan area, with banquet seating
for 1,200 people. In addition, the Pfister opened a new indoor swimming pool and
state of the art fitness center in June 2000. A portion of the Pfister's
first-floor space is leased for use by retail tenants. In fiscal


                                      -4-
<PAGE>

2000, the Pfister Hotel earned its 24th consecutive four-diamond award from the
American Automobile Association. The Pfister is also a member of Preferred
Hotels and Resorts Worldwide Association, an organization of independent luxury
hotels and resorts, and the Association of Historic Hotels of America.

The Hilton Milwaukee City Center

       The Company owns and operates the 730-room Hilton Milwaukee City Center.
The Hilton franchise affiliation has benefited the Hilton Milwaukee City Center
through Hilton's international centralized reservation and marketing system,
advertising cooperatives and frequent stay programs. In June 2000, the Company
completed construction on the rooms and expanded meeting space portion of an
extensive addition, increasing the number of rooms by 175 to the current total
of 730 rooms. The addition will also include an indoor water park and family fun
center that features water slides, swimming pools, a sand beach, lounge and
restaurant.

The Grand Geneva Resort & Spa

       The Grand Geneva Resort & Spa in Lake Geneva, Wisconsin is a
full-facility destination resort located on 1,300 acres. The largest convention
resort in Wisconsin includes 355 guest rooms, 50,000 square feet of banquet,
meeting and exhibit space, 6,600 square feet of ballroom space, three specialty
restaurants, two cocktail lounges, two championship golf courses, several
ski-hills, four indoor and five outdoor tennis courts, three swimming pools, a
spa and fitness complex, horse stables and an on-site airport.

       The Company began selling units of a vacation ownership development
during fiscal 2000 and recently opened its first 18 units and a sales center,
representing the Company's entrance into the timesharing business. Condominium
owners will be able to participate in exchange programs through Resort
Condominiums International.

Miramonte Resort

       The Miramonte Resort in Indian Wells, California, a boutique luxury
resort located on 11 landscaped acres, opened in 1998 following an extensive
renovation. The resort includes 14 two-story Tuscan style buildings housing 226
guest rooms, one restaurant, one lounge and 9,500 square feet of banquet,
meeting and exhibit space, including a 5,000 square foot grand ballroom.
Additionally, there is a fully equipped fitness center and two outdoor swimming
pools, each with an adjacent jacuzzi spa and sauna. New amenities include
outdoor meeting facilities and a golf concierge. During fiscal 2000, the
Miramonte Resort earned its second consecutive four-diamond award from the
American Automobile Association.

Operated and Managed Hotels

       The Company operates the Crowne Plaza-Northstar Hotel in Minneapolis,
Minnesota. The Crowne Plaza-Northstar Hotel is located in downtown Minneapolis
and has 226 rooms, 13 meeting rooms, 6,370 square feet of ballroom and
convention space, one restaurant, one cocktail lounge and an exercise facility.



                                      -5-
<PAGE>

       The Company manages the Hotel Mead in Wisconsin Rapids, Wisconsin. The
Hotel Mead has 157 guest rooms, 10 meeting rooms totaling 14,000 square feet of
meeting space, two cocktail lounges, two restaurants and an indoor pool with a
sauna and whirlpool.

       The Company manages Beverly Garland's Holiday Inn in North Hollywood,
California. The Beverly Garland has 257 rooms, including 12 suites, meeting
space for up to 600, including an amphitheater and ballroom, and an outdoor
swimming pool and lighted tennis courts. The mission-style hotel is located on
seven acres near Universal Studios.

New Developments

       Late in fiscal 2000, the Company purchased the Hotel Phillips, a 240-room
hotel in Kansas City, Missouri. The Company plans to close the property during
Fall 2000 and undertake a complete restoration of the landmark hotel. In late
fiscal 1999, the Company also commenced construction on the Company's new Hilton
Madison at Monona Terrace, a 238-room hotel that will be connected by skywalk to
the new Monona Terrace Convention Center in Madison, Wisconsin and is scheduled
to open in late fiscal 2001.

Theatre Operations

       At the end of fiscal 2000, the Company operated 50 movie theatre
locations with an aggregate of 470 screens in Wisconsin, Illinois, Minnesota and
Ohio for an average of 9.4 screens per location, compared to an average of 8.9
screens per location at the end of fiscal 1999 and 7.8 at the end of fiscal
1998. The Company's facilities include 16 megaplex theatres (12 or more
screens), representing 54% of the Company's total screens, 32 multiplex theatres
(2 to 11 screens) and two single-screen theatres. The theatre division's
long-term growth strategy is to focus on megaplex theatres having between 12 and
20 screens which typically vary in seating capacity from 150 to 450 seats per
screen. Multi-screen theatres allow the Company to offer a more diversified
selection of films to attract additional customers, exhibit movies in larger or
smaller auditoriums within the same theatre depending on the popularity of the
movie and benefit from the economies of having common box office, concession,
projection and lobby facilities. Most of the Company's movie theatres feature
exclusively first-run films.

       The Company added 42 screens in fiscal 2000, including a new 16-screen
UltraPlex(TM) in Oakdale, Minnesota, 19 screens to four existing theatres and
the Company's second large screen IMAX(R) 2D/3D theatre at its Addison, Illinois
location. The Company also purchased a six-screen theatre in Shakopee,
Minnesota. At fiscal year-end, the Company operated 445 first-run screens and 25
budget-oriented screens.

       The results of the Company's movie theatre business and the motion
picture industry in general are largely dependent upon the box office appeal and
marketing of available first-run films, factors over which the Company has no
control. Movie production has been stimulated by additional demand from
ancillary markets such as home video, pay-per-view and cable television, as well
as increased demand from foreign film markets. Fiscal 2000 featured such box
office hits as Star Wars I: The Phantom Menace, The Sixth Sense, Austin Powers
2: The Spy Who Shagged Me, Runaway Bride, Tarzan, Big Daddy, Toy Story 2 and The
Green Mile.



                                      -6-
<PAGE>

       The Company obtains its films from the national motion picture production
and distribution companies and is not dependent on any single motion picture
supplier. Booking, advertising, concession purchases and promotion are handled
centrally by an administrative staff.

       The Company strives to provide its movie patrons with high-quality
picture and sound presentation in clean, comfortable, attractive and
contemporary theatre environments. Substantially all of the Company's movie
theatre complexes feature either digital sound, Dolby or other stereo sound
systems; acoustical ceilings; side wall insulation; engineered drapery folds to
eliminate sound imbalance, reverberation and distortion; tiled floors; loge
seats; cup-holder chair-arms; and computer-controlled heating, air conditioning
and ventilation. Computerized box offices permit all of the Company's movie
theatres to sell tickets in advance. The Company's theatres are accessible to
persons with disabilities and provide wireless headphones for hearing-impaired
moviegoers. Other amenities at certain theatres include THX auditoriums, which
allow customers to hear the softest and loudest sounds, and touch-screen,
computerized, self-service ticket kiosks, which simplify advance ticket
purchases. The Company also operates an exclusive customer information telephone
system in Milwaukee and Madison, allowing customers to call for information
regarding the locations, times and titles of movies being shown by the Company
throughout each metropolitan area. The Company also operates the Marcus Movie
Hitline, which is a satellite-based automated telephone ticketing system
enabling moviegoers to buy tickets to movies at any of 12 Marcus first-run
theatres in the metropolitan Milwaukee area and its two theatres in Columbus,
Ohio using a credit card. In fiscal 2000, the Company announced plans to acquire
a small equity interest in MovieTickets.com, a joint venture of movie and
entertainment companies representing nearly 5,500 screens throughout the United
States and Canada created to sell movie tickets over the Internet. As a result
of its association with MovieTickets.com, the Company expects to introduce
on-line ticketing during fiscal 2001, allowing moviegoers to buy tickets at
certain theatres via the Internet.

       The Company has enhanced its offerings of amenities at over 77% of its
first-run theatres with stadium seating, a tiered seating system that permits
unobstructed viewing. The Company is continuing an extensive program to add
stadium seating to approximately 90% of its existing first-run screens by the
end of 2001.

       The Company sells food and beverage concessions at all of its movie
theatres. The Company believes that a wide variety of food and beverage items,
properly merchandised, increases concession revenue per patron. Although popcorn
remains the traditional favorite with moviegoers, the Company continues to
upgrade its available concessions by offering varied choices. For example, some
of the Company's theatres offer hot dogs, pizza, ice cream, pretzel bites,
frozen yogurt, coffee, mineral water and juices.

       The Company also owns a family entertainment center, Funset Boulevard,
adjacent to its 11-screen movie theatre in Appleton, Wisconsin. Funset Boulevard
features a 40,000 square foot Hollywood-themed indoor amusement facility,
including a restaurant, party room, a laser tag center, virtual reality games,
an arcade, an outdoor miniature golf course and batting cages.



                                      -7-
<PAGE>

Discontinued Restaurant Operations

       In September 1999, the Company announced its intention to sell its 30 KFC
and KFC/Taco Bell 2-in-1 restaurants. The Company decided to dispose of its
restaurant business in order to concentrate on its core lodging and theatre
operations. An agreement entered into by the Company in September 1999 to sell
the KFC restaurants was subsequently terminated during the second quarter. The
Company is currently actively pursuing the sale of the KFC assets, which consist
primarily of land, buildings and equipment.

       The Company has non-exclusive franchise rights to operate KFC restaurants
in the Milwaukee metropolitan area and in northeast Wisconsin. The Company
currently operates 27 KFC restaurants and three KFC/Taco Bell 2-in-1
restaurants. The Company is the largest operator of KFC restaurants in
Wisconsin, based on the number of facilities operated. The restaurants feature
Kentucky Fried Chicken and other franchisor-authorized food items.

       Virtually all of the Company's KFC restaurants feature inside seating for
approximately 24 to 54 customers, drive-thru windows and updated electronic
equipment to better facilitate food preparation and order processing. Twelve
locations in the Fox Valley and Milwaukee metropolitan areas offer home
delivery.

       The Company's KFC locations operate under individual franchise
agreements, all of which were renewed in early fiscal 1998 for a term of 20
years. Franchise royalties approximate 4% of net sales and, in addition, an
initial flat fee of $14,000 is payable for each new KFC restaurant. The KFC
franchisor specifies certain product requirements and provides for certain
approved suppliers of products and supplies in order to maintain quality
standards.

Competition

       In each of its businesses, the Company experiences intense competition
from national and/or regional chain and franchise operations, some of which have
substantially greater financial and marketing resources than the Company. Most
of the Company's facilities are located in close proximity to other facilities
which compete directly with those of the Company.

       The Company's Baymont Inns & Suites compete with such national
limited-service lodging chains as Hampton Inn (owned by Hilton Hotels
Corporation), Fairfield Inn (owned by Marriott Corporation), Holiday Inn
Express, Comfort Inn and others, as well as a large number of regional and local
chains. The Company's Woodfield Suites compete with such national chains as
Embassy Suites, Comfort Suites, AmeriSuites and Courtyard by Marriott, as well
as other regional and local all-suite facilities.

       The Company's hotels and resorts compete with the hotels and resorts
operated by Hyatt Corporation, Marriott Corporation, Ramada Inns, Holiday Inns,
Wyndham Hotels and others, along with other regional and local hotels and
resorts.

       In the restaurant business, the Company's KFC restaurants compete locally
with Hardee's, Boston Market, Popeye's and similar national and regional fast
food chains and individual restaurants offering chicken.



                                      -8-
<PAGE>

       The Company's movie theatres compete with large national movie theatre
operators, such as AMC Entertainment, General Cinemas, Cinemark, Regal Cinemas,
Loews Cineplex and Carmike Cinemas, as well as with a wide array of smaller
first-run and discount exhibitors. Although movie exhibitors also generally
compete with the home video, pay-per-view and cable television markets, the
Company believes that such ancillary markets have assisted the growth of the
movie theatre industry by encouraging the production of first-run movies
released for initial movie theatre exhibition, which establishes the demand for
such movies in these ancillary markets.

       The Company believes that the principal factors of competition in each of
its businesses, in varying degrees, are the price and quality of its product,
quality and location of its facilities and customer service. The Company
believes that it is well positioned to compete on the basis of these factors.

Seasonality

       Historically, the Company's first fiscal quarter has produced the
strongest operating results, because this period coincides with the typical
summer seasonality of the movie theatre industry and the summer strength of the
Company's lodging and food service businesses. The Company's third fiscal
quarter has historically produced the weakest operating results, primarily due
to the effects of reduced travel during the winter months on the Company's
lodging businesses.

Research and Development

       Research and development expenditures for the Company are not material.

Environmental Regulation

       The Company does not expect federal, state or local environmental
legislation to have a material effect on the Company's capital expenditures,
earnings or competitive position. However, the Company's activities in acquiring
and selling real estate for business development purposes have been complicated
by the continued emphasis placed by Company personnel on properly analyzing real
estate sites for potential environmental problems. This circumstance has
resulted in, and is expected to continue to result in, greater time and
increased costs involved in acquiring and selling properties associated with the
Company's various businesses.

Employees

       As of the end of fiscal 2000, the Company had approximately 7,300
employees, a majority of whom were employed on a part-time basis. A majority of
the Company's hotel employees in Milwaukee, Wisconsin are covered by collective
bargaining agreements which expire in June 2002. A number of the Company's hotel
employees in Minneapolis, Minnesota are covered by collective bargaining
agreements which expire in April 2005. Relations with employees have been
satisfactory, and the Company has experienced no material work stoppages due to
labor disputes.



                                      -9-
<PAGE>

Item 2.  Properties.

       The Company owns a substantial portion of its facilities, including the
Pfister Hotel, the Hilton Milwaukee City Center, the Grand Geneva Resort and
Spa, the Miramonte Resort and the Hotel Phillips, all of the Company-owned
Baymont Inns & Suites and Woodfield Suites, the majority of its theatres and
restaurants, and leases the remainder. The Company also manages three hotel
properties for third parties. Additionally, the Company owns properties acquired
for the future construction and operation of new Company operating facilities.
Some of its properties are leased from entities owned by principal shareholders
of the Company. All of the Company's properties are suitably maintained and
adequately utilized to cover the respective business segment served.

       The operating properties owned, leased and franchised by the Company are
summarized in the following table:

<TABLE>
<CAPTION>

                               Total                   Leased      Leased      Managed    Managed
                             Number of                  from        from        for         for
                             Facilities               Unrelated    Related     Related    Unrelated      Owned By
     Business Segment       in Operation  Owned(1)     Parties     Parties     Parties     Parties    Franchisees(2)
     ----------------       ------------  --------     -------     -------     -------     -------    --------------
<S>                             <C>          <C>          <C>          <C>      <C>         <C>         <C>
Restaurants:
  KFC                            30           29           1           0        0           0            0
Movie Theatres:                  50           37          12           1        0           0            0
Hotels and Resorts:
  Hotels                          6            3           0           0        0           3            0
  Resorts                         2            2           0           0        0           0            0
Limited-Service Lodging:
  Baymont Inns & Suites         171           85           0           0        9           1           76
  Woodfield Suites                7            7           0           0        0           0            0
                                ---         ----          --          --       --          --           --
           TOTALS               266          163          13           1        9           4           76
                                ===          ===          ==          ==       ==          ==           ==
- ------------------------

(1) One of the KFC restaurants, two of the movie theatres and two of the Baymont
Inns & Suites are on land leased from unrelated parties under long-term leases.
One of the Baymont Inns & Suites and one of the Woodfield Suites are located on
land leased from related parties. The Company's partnership interests in nine
Baymont Inns & Suites that it manages and one movie theatre that it leases are
not included in this column.

(2)  The Company manages three Baymont Inns & Suites for franchisees.
</TABLE>

       Certain of the above individual properties or facilities are subject to
purchase money or construction mortgages or commercial lease financing
arrangements; none of these encumbrances are considered in the aggregate to be
material to the Company.

       The terms of over 90% of the Company's operating property leases expire
on various dates after fiscal 2001 (assuming exercise by the Company of all
renewal and extension options).

Item 3. Legal Proceedings.

       The Company does not believe that any pending legal proceeding involving
the Company is material to its business. No legal proceeding required to be
disclosed under this item was terminated during the fourth quarter of the
Company's 2000 fiscal year.



                                      -10-
<PAGE>

Item 4.  Submission of Matters to a Vote of Security Holders.

       No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of the Company's 2000 fiscal year.

                          EXECUTIVE OFFICERS OF COMPANY

       Each of the current executive officers of the Company is identified below
together with information about each such officer's age, current position with
the Company and employment history for at least the past five years:

<TABLE>
<CAPTION>
          Name                                        Position                                 Age

<S>                       <C>                                                                   <C>
Stephen H. Marcus         Chairman of the Board, President and Chief Executive Officer          65

Bruce J. Olson            Group Vice President                                                  50

James R. Abrahamson       President and Chief Operating Officer, Baymont Inns & Suites          44

H. Fred Delmenhorst       Vice President-Human Resources                                        59

Thomas F. Kissinger       General Counsel and Secretary                                         40

Douglas A. Neis           Chief Financial Officer and Treasurer                                 41

</TABLE>
       Stephen H. Marcus has been Chairman of the Board of the Company since
December 1991 and President and Chief Executive Officer since December 1988. Mr.
Marcus has been employed by the Company for 39 years.

       Bruce J. Olson has been employed in his present position with the Company
since July 1991. He was elected to serve on the Company's Board of Directors in
April 1996. Mr. Olson previously served as Vice President-Administration and
Planning for the Company from September 1987 until July 1991 and as Executive
Vice President and Chief Operating Officer of Marcus Theatres Corporation from
August 1978 until October 1988, when he was appointed President of that
corporation. Mr. Olson joined the Company in 1974.

       James R. Abrahamson joined the Company in April 2000 as President and
Chief Operating Officer of Baymont Inns & Suites. Mr. Abrahamson previously
served as Executive Vice President of the Franchise Hotel Group of Hilton Hotels
Corporation from January 1995 until April 2000.

       H. Fred Delmenhorst has been the Vice President-Human Resources since he
joined the Company in December 1984.

       Thomas F. Kissinger joined the Company in August 1993 as Secretary and
Director of Legal Affairs and in August 1995 was promoted to General Counsel and
Secretary. Prior thereto, Mr. Kissinger was associated with the law firm of
Foley & Lardner for five years.



                                      -11-
<PAGE>

       Douglas A. Neis joined the Company in February 1986 as Controller of the
Marcus Theatres division and in November 1987 he was promoted to Controller of
Marcus Restaurants. In July 1991, Mr. Neis was appointed Vice President of
Planning and Administration for Marcus Restaurants. In September 1994, Mr. Neis
was also named Director of Technology for the Company and in September 1995 he
was elected Corporate Controller for the Company. In September 1996, Mr. Neis
was promoted to Chief Financial Officer and Treasurer of the Company.

       The executive officers of the Company are generally elected annually by
the Board of Directors after the annual meeting of shareholders. Each executive
officer holds office until his successor has been duly qualified and elected or
until his earlier death, resignation or removal.

                                     PART II

Item 5.  Market for the Company's Common Equity and Related Shareholder Matters.

       The information required by this item is incorporated by reference to the
information pertaining thereto included on Pages 30, 31 and 33 of the Company's
2000 Annual Report to Shareholders.

Item 6.  Selected Financial Data.

       The information required by this item is incorporated by reference to the
information pertaining thereto included on Page 30 of the Company's 2000 Annual
Report to Shareholders.

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.

       The information required by this item is incorporated by reference to the
information pertaining thereto included on Pages 10 through 17 of the Company's
2000 Annual Report to Shareholders.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

       The information required by this item is incorporated by reference to the
information pertaining thereto included on Page 17 of the Company's 2000 Annual
Report to Shareholders.

Item 8.  Financial Statements and Supplementary Data.

       The information required by this item is incorporated by reference to the
information pertaining thereto included on Pages 18 through 29 and 31 of the
Company's 2000 Annual Report to Shareholders.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.

       Not applicable.


                                      -12-
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Company.

       The information required by this item with respect to directors is
incorporated herein by reference to the information pertaining thereto set forth
under the caption entitled "Election of Directors" in the definitive Proxy
Statement for the Company's 2000 Annual Meeting of Shareholders scheduled to be
held September 25, 2000 (the "Proxy Statement"). The required information with
respect to executive officers appears at the end of Part I of this Form 10-K.
The required information with respect to compliance with Section 16(a) of the
Securities Exchange Act of 1934 by directors and executive officers is
incorporated by reference to the information pertaining thereto set forth under
the caption entitled "Section 16(a) Beneficial Ownership Reporting Compliance"
in the Proxy Statement.

Item 11. Executive Compensation.

       The information required by this item is incorporated herein by reference
to the information pertaining thereto set forth under the caption entitled
"Executive Compensation" in the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

       The information required by this item is incorporated herein by reference
to the information pertaining thereto set forth under the caption entitled
"Stock Ownership of Management and Others" in the Proxy Statement.

Item 13. Certain Relationships and Related Transactions.

       The information required by this item, to the extent applicable, is
incorporated herein by reference to the information pertaining thereto set forth
under the caption entitled "Certain Transactions" in the Proxy Statement.

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)(1)   Financial Statements.

       The consolidated financial statements of the Company as of May 25, 2000
and May 27, 1999 and for each of the three years in the period ended May 25,
2000, together with the report thereon of Ernst & Young LLP, dated July 14,
2000, appear on Pages 18 through 29 of the Company's 2000 Annual Report to
Shareholders, and are incorporated herein by reference.

(a)(2)   Financial Statement Schedules.

       All schedules are omitted because they are inapplicable, not required
under the instructions or the financial information is included in the
consolidated financial statements or notes thereto.



                                      -13-
<PAGE>

(a)(3)   Exhibits.

       The exhibits filed herewith or incorporated by reference herein are set
forth on the attached Exhibit Index.*

(b)      Reports on Form 8-K.

       The Company did not file a Form 8-K with the Securities and Exchange
Commission during the fourth quarter of fiscal 2000.

- ------------------

*        Exhibits to this Form 10-K will be furnished to shareholders upon
         advance payment of a fee of $0.20 per page, plus mailing expenses.
         Requests for copies should be addressed to Thomas F. Kissinger, General
         Counsel and Secretary, The Marcus Corporation, 250 East Wisconsin
         Avenue, Suite 1700, Milwaukee, Wisconsin 53202.


                                      -14-
<PAGE>

                                   SIGNATURES

       Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        THE MARCUS CORPORATION

Date:  August 23, 2000                  By:  /s/ Stephen H. Marcus
                                            -------------------------------
                                            Stephen H. Marcus,
                                            Chairman of the Board and President

       Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities as of the date indicated above.



By:/s/ Stephen H. Marcus                   By:/s/ Daniel F. McKeithan
   --------------------------------           ---------------------------------
   Stephen H. Marcus, Chairman of the         Daniel F. McKeithan, Jr., Director
   Board and President (Chief Executive
   Officer)



By:/s/ Douglas A. Neis                     By:/s/ Diane Marcus Gershowitz
   --------------------------------           ---------------------------------
   Douglas A. Neis, Treasurer and             Diane Marcus Gershowitz, Director
   Controller (Chief Financial and
   Accounting Officer)



By:/s/ Bruce J. Olson                      By:/s/ Timothy E. Hoeksema
   --------------------------------           ---------------------------------
   Bruce J. Olson, Director                   Timothy E. Hoeksema, Director



By:/s/ Philip L. Milstein                  By:/s/ Allan H. Selig
   --------------------------------           ---------------------------------
   Philip L. Milstein, Director               Allan H. Selig, Director



By:/s/ Bronson J. Haase
   -------------------------------
   Bronson J. Haase, Director


                                      S-1

<PAGE>

                                  EXHIBIT INDEX

3.1    Restated Articles of Incorporation. [Incorporated by reference to Exhibit
       3.2 to the Company's Quarterly Report on Form 10-Q for the quarterly
       period ended November 13, 1997.]

3.2*   Bylaws, as amended as of December 17, 1998. [Incorporated by reference to
       Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the
       quarterly period ended November 26, 1998.]

4.1    Senior Note Purchase Agreement dated May 31, 1990, between the Company
       and The Northwestern Mutual Life Insurance Company. [Incorporated by
       reference to Exhibit 4 to the Company's Annual Report on Form 10-K for
       the fiscal year ended May 31, 1990.]

4.2    The Marcus Corporation Note Purchase Agreement dated October 25, 1996.
       [Incorporated by reference to Exhibit 4.1 to the Company's Quarterly
       Report on Form 10-Q for the quarterly period ended November 14, 1996.]

4.3    First Supplement to Note Purchase Agreements dated May 15, 1998.
       [Incorporated by reference to Exhibit 4.3 to the Company's Annual Report
       on Form 10-K for the fiscal year ended May 28, 1998.]

4.4    Second Supplement to Note Purchase Agreements dated May 7, 1999.
       [Incorporated by reference to Exhibit 4.4 to the Company's Annual Report
       on Form 10-K for the fiscal year ended May 27, 1999.]

4.5    Credit Agreement dated as of April 29, 1999, among the Company, Bank of
       America National Trust and Savings Association, as Administrative Agent,
       Bank One, Wisconsin, as Documentation Agent, the other financial
       institutions parties thereto and Nationsbanc Montgomery Securities LLC,
       as Sole Arranger and Sole Book Manager. [Incorporated by reference to
       Exhibit 4.5 to the Company's Annual Report on Form 10-K for the fiscal
       year ended May 27, 1999.]

4.6    Other than as set forth in Exhibits 4.1, 4.2, 4.3, 4.4 and 4.5, the
       Company has numerous instruments which define the rights of holders of
       long-term debt. These instruments, primarily promissory notes, have
       arisen from the purchase of operating properties in the ordinary course
       of business. These instruments are not being filed with this Annual
       Report on Form 10-K in reliance upon Item 601(b)(4)(iii) of Regulation
       S-K. Copies of these instruments will be furnished to the Securities and
       Exchange Commission upon request.



                                      E-1
<PAGE>

10.1   The Company is the guarantor and/or obligor under various loan agreements
       in connection with operating properties (primarily Baymont Inns & Suites)
       which were financed through the issuance of industrial development bonds.
       These loan agreements and the additional documentation relating to these
       projects are not being filed with this Annual Report on Form 10-K in
       reliance upon Item 601(b)(4)(iii) of Regulation S-K. Copies of these
       documents will be furnished to the Securities and Exchange Commission
       upon request.

10.2   Comprehensive Image Enhancement Agreement, dated October 12, 1988,
       between the Company and KFC Corporation. [Incorporated by reference to
       Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal
       year ended May 25, 1989.]

10.3   Form of individual Kentucky Fried Chicken franchise agreement between the
       Company and KFC Corporation. [Incorporated by reference to Exhibit 10.3
       to the Company's Annual Report on Form 10-K for the fiscal year ended May
       29, 1997.]

10.4*  The Marcus Corporation 1995 Equity Incentive Plan, as amended.
       [Incorporated by reference to Exhibit 10.4 to the Company's Annual Report
       on Form 10-K for the fiscal year ended May 27, 1999.]

10.5*  The Marcus Corporation 1994 Nonemployee Director Stock Option Plan.
       [Incorporated by reference to Exhibit A to the Company's 1994 Proxy
       Statement.]

13     The Company's 2000 Annual Report to Shareholders, to the extent
       incorporated by reference herein.

21     Subsidiaries of the Company as of May 25, 2000.

23     Consent of Ernst & Young LLP.

27     Financial Data Schedule for the fiscal year ended May 25, 2000.

99     Proxy Statement for the 2000 Annual Meeting of Shareholders. (The Proxy
       Statement for the 2000 Annual Meeting of Shareholders will be filed with
       the Securities and Exchange Commission under Regulation 14A within 120
       days after the end of the Company's fiscal year. Except to the extent
       specifically incorporated by reference, the Proxy Statement for the 2000
       Annual Meeting of Shareholders shall not be deemed to be filed with the
       Securities and Exchange Commission as part of this Annual Report on Form
       10-K.)


- ----------

* This exhibit is a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this form pursuant to Item 14(c) of Form
10-K.


                                      E-2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>ANNUAL REPORT
<TEXT>


management's discussion and analysis

                           Forward-Looking Statements

Certain matters discussed in this annual report to shareholders, particularly in
the Shareholders' Letter and Management's Discussion and Analysis, are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements may generally be identified as such because the
context of such statements will include words such as the Company "believes,"
"anticipates," "expects" or words of similar import. Similarly, statements that
describe the Company's future plans, objectives or goals are also
forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties, including, but not limited to, the following:
(i) the Company's ability to identify properties to acquire, develop and/or
manage and continuing availability of funds for such development; (ii) the
Company's ability to attract potential partners to assist in the acquisition
and/or development of properties; (iii) the limited-service lodging division's
ability to attract and retain quality franchise operators and to effectively
execute its Baymont repositioning strategy; (iv) continuing consumer demand as a
result of general economic conditions with respect to the hotels and resorts and
limited-service lodging divisions; (v) continuing availability, in terms of both
quality and quantity, of films for the theatre division; and (vi) competitive
conditions in the markets served by the Company. Shareholders, potential
investors and other readers are urged to consider these factors carefully in
evaluating the forward-looking statements and are cautioned not to place undue
reliance on such forward-looking statements. The forward-looking statements made
herein are made only as of the date of this report and the Company undertakes no
obligation to publicly update such forward-looking statements to reflect
subsequent events or circumstances.

                             Results of Operations

                                    GENERAL

The Marcus Corporation reports consolidated and individual segment results of
operations on a 52-or-53-week fiscal year ending on the last Thursday in May.
Fiscal 2000 and fiscal 1999 were 52-week years for the Company and each of its
divisions. Fiscal 1998 was a 53-week fiscal year for the Company's restaurant
division, while the Company and each of its other divisions reported on a
52-week fiscal year. Fiscal 2001 will be a 53-week year for the Company and each
of its divisions and the Company anticipates that its reported results for
fiscal 2001 will be increased proportionately by the additional week of
operations.

The Company divides its fiscal year into three 13-week quarters and a final
quarter consisting of 13 or 14 weeks. The Company's primary operations are
reported in the following three business segments: limited-service lodging,
theatres and hotels/resorts. As a result of the Company's stated intention to
dispose of its KFC restaurants, the restaurant business segment has been
presented as discontinued operations in the accompanying financial statements
and prior year financial results have been restated to conform with the current
year presentation.

Total revenues for fiscal 2000 were $352.1 million, an increase of $16.1
million, or 4.8%, compared to fiscal 1999 revenues of $336.0 million. Fiscal
1999 revenues increased $27.2 million, or 8.8%, from fiscal 1998 revenues. The
Company's theatre and hotel/resort divisions contributed to the increase in
revenues during both fiscal years. The Company's limited-service lodging
division revenues decreased during both fiscal years.

Earnings from continuing operations for fiscal 2000 were $21.2 million, or $.71
per share, an increase of 1.3% and 1.4%, respectively, from earnings from
continuing operations of $21.0 million, or $.70 per share, for fiscal 1999.
Fiscal 1999 earnings from continuing operations decreased $7.7 million, or
26.9%, from fiscal 1998 earnings from continuing operations of $28.7 million, or
$.95 per share, excluding the after-tax charge of $2.34 million, or $.08 per
share, in fiscal 1998 resulting from the Company's decision to change the name
of Budgetel Inns to Baymont Inns & Suites. The Company recorded a $2.34 million
after-tax charge ($3.9 million before-tax) to earnings for the write-off of
existing signage and other one-time expenses associated with the name change
during the fourth quarter of fiscal 1998. Including the name change charge,
earnings from continuing operations were $26.3 million, or $.87 per share, for
fiscal 1998.

Net earnings for fiscal 2000 were $22.6 million, or $.76 per share. This
represented a $522,000, or 2.3% decrease, from fiscal 1999 net earnings of $23.1
million, or $.77 per share. Fiscal 1999 net earnings decreased $7.6 million, or
24.8%, from comparable fiscal 1998 earnings of $30.7 million, or $1.02 per
share, excluding the after-tax charge for the Baymont name change. Including the
name change charge, net earnings were $28.4 million, or $.94 per share, for
fiscal 1998. Weighted average shares outstanding were 29.8 million for fiscal
2000, 30.1 million for fiscal 1999 and 30.3 million for fiscal 1998. All per
share and share data in this discussion have been adjusted to reflect the
Company's three-for-two stock split effected in the form of a 50% stock dividend
on December 5, 1997. All per share data presented herein is on a diluted basis.

The Company's net interest expense, net of investment income, totaled $16.5
million for fiscal 2000. This represented an increase of $459,000, or 2.9%, over
fiscal 1999 net interest expense of $16.1 million. Fiscal 1999 net interest
expense increased $4.3 million, or 36.4%, over fiscal 1998 net interest expense
of $11.8 million. These increases were the result of additional borrowings in
fiscal 2000 and fiscal 1999 used to help finance the Company's capital expansion
program and stock repurchase program, partially offset by increased investment
income and capitalized interest.

The Company's income tax expense on continuing operations for fiscal 2000 was
$14.6 million, an increase of $356,000 from

                                       10
<PAGE>

fiscal 1999. The Company's effective tax rate for fiscal 2000 was 40.7%,
compared to 40.5% in fiscal 1999 and 40.0% in fiscal 1998. The increased
effective tax rate during fiscal 2000 and fiscal 1999 was the result of
increased state income taxes, net of federal income tax benefits. The Company
believes that its effective tax rate may decrease slightly in fiscal 2001 as the
Company reorganizes and consolidates some of its operating subsidiaries.

Historically, the Company's first fiscal quarter has produced the strongest
operating results because this period coincides with the typical summer
seasonality of the movie theatre industry and the summer strength of the
Company's lodging businesses. The Company's third fiscal quarter has
historically produced the weakest operating results primarily due to the effects
of reduced travel during the winter months on the Company's lodging businesses.

The Company incurred approximately $100 million in aggregate capital
expenditures during fiscal 2000 and over $500 million during the last five
fiscal years. The Company's current expansion plans include the following goals:

o    Continuing to define and build the Baymont Inns & Suites brand, with a goal
     to be the "best in class" in the mid-price without food and beverage
     segment of the lodging industry. The Company currently believes that most
     of its anticipated future growth will ultimately come from its emphasis on
     opening new franchised Baymont Inns and Baymont Inns & Suites. As of the
     end of fiscal 2000, one new Company-owned and 26 new franchised properties
     were under development, the majority of which are expected to open during
     fiscal 2001. The Company currently believes that it will add 25 to 35 new
     franchised properties per year over the next few years. By emphasizing
     franchising, the Company believes the Baymont brand may grow more rapidly,
     conserving capital for other strategic purposes within the Company. In
     addition to the development of new franchised properties, the Company plans
     to further emphasize franchising in the future by exploring the potential
     sale of approximately 20 Company-owned properties to new and existing
     franchisees over the next three years, with the Company possibly retaining
     a management contract in some cases. The Company also anticipates exploring
     additional growth of the Baymont brand through potential acquisitions and
     joint venture investments.

o    Reaching its target of 500 movie theatre screens during fiscal 2001. The
     Company plans to open up to 36 new screens during fiscal 2001, including 19
     new screens to be added to existing locations in Wisconsin, Illinois and
     Minnesota. The Company's second large UltraScreen(TM) opened in June 2000
     at a Madison, Wisconsin location. The Company also has plans to complete
     its stadium seating retrofit program, resulting in stadium seating in
     approximately 90% of its first-run screens by the end of 2001.

o    Increasing the number of rooms managed by the hotel and resort division to
     10,000 rooms over the next five years, either Company-owned or managed for
     others. The Company anticipates that the majority of this growth will come
     from management contracts for other owners. In some cases, the Company may
     own a partial interest in the new properties. The Company opened an
     extensive addition to the Hilton Milwaukee City Center in June 2000. In
     addition, the Company currently has two Company-owned projects under
     construction or in development: the Hilton Madison at Monona Terrace - a
     238-room public/private endeavor with the City of Madison, Wisconsin
     scheduled to open late in fiscal 2001; and the Hotel Phillips - a 240-room
     public/private project in Kansas City, Missouri. The Company purchased the
     Hotel Phillips in May 2000 and currently plans to close the property this
     fall in order to undertake a complete restoration of this landmark
     property.

o    Evaluating additional growth opportunities. The Company opened its seventh
     Woodfield Suites during fiscal 2000 and is evaluating additional sites and
     franchising opportunities. The Company began selling units of a vacation
     ownership development at the Grand Geneva Resort & Spa during fiscal 2000
     and recently opened its first 18 units and a sales center, representing the
     Company's entrance into the timesharing business. The Company expects to
     continue growing this business in fiscal 2001 and beyond.

The actual number, mix and timing of potential future new facilities and
expansions will depend in large part on continuing favorable industry and
economic conditions, the Company's financial performance and available capital,
the competitive environment, evolving customer needs and trends, customer
acceptance of the new Baymont brand, the Company's ability to increase the
number of franchised locations at a pace faster than that achieved under the
Budgetel name and the continued availability of attractive opportunities. It is
likely that the Company's expansion goals will continue to evolve and change in
response to these and other factors with no assurance that these current goals
will be achieved.

                            LIMITED-SERVICE LODGING

The Company's largest division is its limited-service lodging division, which
contributed 39.2% of the Company's consolidated revenues and 39.0% of Company
consolidated operating income, excluding corporate items, during fiscal 2000.
The division's primary business consists of owning and franchising Baymont Inns
& Suites and Woodfield Suites, which respectively operate in the segments of the
lodging industry designated as "limited-service mid-price without food and
beverage" and "limited-service all-suites." The following tables set forth
revenues, operating income, operating margin, number of units and rooms data for
the limited-service lodging division for the last three fiscal years:

(in millions)                           2000            1999            1998
- --------------------------------------------------------------------------------
Revenues                              $138.2          $141.6          $144.7
Operating income                        21.0            25.5            35.4*
Operating margin (% of revenues)        15.2%           18.0%           24.4%*
- --------------------------------------------------------------------------------
* Excludes $3.9 million before-tax charge for Baymont name change.
<PAGE>

                                                 Number of units at year-end
                                        2000            1999            1998
- --------------------------------------------------------------------------------
Baymont Inns & Suites
   Company-owned or operated              95              99             106
   Franchised                             76              65              50
- --------------------------------------------------------------------------------
      Total Baymont Inns & Suites        171             164             156
- --------------------------------------------------------------------------------
Woodfield Suites
   Company-owned                           7               6              5
- --------------------------------------------------------------------------------
      Total number of units              178             170             161
- --------------------------------------------------------------------------------

                                                 Available rooms at year-end
                                        2000            1999            1998
- --------------------------------------------------------------------------------
Baymont Inns & Suites
   Company-owned or operated           9,877          10,380          11,326
   Franchised                          6,775           5,984           4,766
- --------------------------------------------------------------------------------
      Total Baymont Inns & Suites     16,652          16,364          16,092
- --------------------------------------------------------------------------------
Woodfield Suites                         889             737             610
- --------------------------------------------------------------------------------
      Total available rooms           17,541          17,101          16,702
- --------------------------------------------------------------------------------

Total revenues in the limited-service lodging division decreased 2.4% during
fiscal 2000 due primarily to the reduction in the number of Company-owned
Baymont Inns & Suites. Total revenues decreased 2.2% during fiscal 1999
principally as a result of reduced occupancy at the Company's comparable Inns.
Average daily room rates at Baymont Inns & Suites increased 7.9% during fiscal
2000 and 3.1% during fiscal 1999 compared to the respective prior years.
Baymont's occupancy percentage decreased 2.5 and 3.9 percentage points during
fiscal 2000 and fiscal 1999, respectively. The primary factor contributing to
the decline in occupancy in both fiscal years was the significant increase in
the industry supply of limited-service lodging rooms. The increased room supply
was especially prevalent in the Midwestern and Southern portions of the country,
where the Company has a large number of properties. Occupancy was also
negatively impacted during the second half of fiscal 1999 and first half of
fiscal 2000 by the name change from Budgetel to Baymont. The result of the
average daily rate increases and occupancy declines was a 2.4% increase and a
3.7% decrease in Baymont Inns & Suites revenue per available room, or RevPAR,
for comparable Inns for fiscal 2000 and 1999, respectively. RevPAR for
comparable Woodfield Suites increased 2.2% during fiscal 2000 and 7.9% during
fiscal 1999 compared to the prior fiscal years, respectively.

During the third quarter of fiscal 1999, the Company officially changed the name
of its Budgetel Inns to Baymont Inns and Baymont Inns & Suites. As the Company
expected, the Baymont introduction did not immediately alter the trends being
experienced by the Company and others in the limited-service segment of the
lodging industry and may have actually contributed to a decline in occupancy
during the name change transition, as customers were not yet familiar with the
new name. The division's quarterly RevPAR trends for the last two fiscal years
have been as follows:

                                                             RevPAR % change
                                                        2000            1999
- --------------------------------------------------------------------------------
1st Quarter                                             -2.9%           +0.9%
2nd Quarter                                             -0.6%           -0.9%
3rd Quarter                                             +5.9%           -7.3%
4th Quarter                                             +7.2%           -5.0%
- --------------------------------------------------------------------------------

As the above table indicates, the percentage change in RevPAR at comparable
Baymont Inns & Suites has improved each quarter since the initial introduction
of the new brand during the third quarter of fiscal 1999. The improvement in
RevPAR is attributable primarily to increased market awareness of the Baymont
brand and the addition of lobby breakfasts at the majority of the Company-owned
Baymont locations. Inns with lobby breakfasts consistently performed
significantly better than Inns without the lobby breakfast, due to favorable
guest response to the new amenity and increased average rates implemented in
conjunction with such installations. The Company completed installation of the
lobby breakfasts at its Company-owned Inns during the third quarter of fiscal
2000. Subject to changes in economic and industry conditions, the Company
believes that RevPAR should continue to improve during fiscal 2001 as market
awareness of the Baymont brand continues to increase and the Company benefits
from a full year of the lobby breakfast program.

No Company-owned Baymont Inns & Suites were opened during fiscal 2000 or fiscal
1999, while two new Budgetel Inns were opened in fiscal 1998. One new Woodfield
Suites was opened during each of the last three fiscal years. The Company's
newly opened Woodfield Suites contributed additional revenues of $3.2 million
and nominal operating income during fiscal 2000. Newly opened properties
contributed additional revenue of $2.4 million and nominal operating income
during fiscal 1999. During the first half of fiscal 2000, the Company sold four
Baymont Inns, including one to a franchisee. Pre-tax gains of approximately $2.4
million were recognized during fiscal 2000 as a result of the sale of these
Inns. Late in fiscal 1999, the Company sold seven Baymont Inns & Suites,
including five to a new franchisee. A pre-tax gain of approximately $1.3 million
was recognized during fiscal 1999 as a result of those sales. As a result of the
sale of these 11 Inns, fiscal 2000 and fiscal 1999 revenues were negatively
impacted by $7.9 million and $800,000, respectively, compared to the prior
years. The Company has identified up to 20 additional Baymont Inns & Suites that
will be considered for sale to new and existing franchisees over the next three
years as part of the Company's strategy to emphasize growth through franchising.
In some cases, the Company may continue to manage a sold property for a new
owner under the terms of a management contract. The Company believes that this
strategy will give its franchise partners the opportunity to develop a
significant market presence and will allow the Company to utilize the sales
proceeds for other growth opportunities, including developing Baymont properties
in new markets. Although this strategy will result in reduced revenues until the
sales proceeds are reinvested, the Company expects that profitability will
increase over time as a result.

                                       12
<PAGE>

The limited-service lodging division's operating income decreased 17.7% and
27.9% during fiscal 2000 and fiscal 1999, respectively, excluding the fiscal
1998 $3.9 million before-tax charge for Baymont name-change costs. Operating
margins, excluding the Baymont name-change costs, declined to 15.2%, compared to
18.0% and 24.4% in fiscal 1999 and 1998, respectively, due primarily to the
reductions in RevPAR during fiscal 1999 and first half of fiscal 2000, increased
payroll costs from a tight labor market, combined with increased costs of
additional guest amenities and marketing costs associated with the re-branding
effort. In addition, administrative costs have increased due to recent
investments in information technology and personnel, including sales staff,
incurred in association with the Baymont re-branding. Partially offsetting the
reduced operating income from Baymont Inns & Suites operations were improved
franchise revenues and increased operating income from the division's Woodfield
Suites properties. Overall limited-service lodging division operating margins
increased slightly during the second half of fiscal 2000 compared to the same
period during the prior year and the Company currently expects margins to
continue to stabilize and improve during fiscal 2001 if economic and industry
conditions do not worsen.

                                    THEATRES

The Company's oldest and second largest division is its theatre division. The
theatre division contributed 34.7% of the Company's consolidated revenues and
40.9% of its consolidated operating income, excluding corporate items, during
fiscal 2000. The theatre division operates motion picture theatres in Wisconsin,
Illinois, Ohio and Minnesota, and a family entertainment center in Wisconsin.
The following tables set forth revenues, operating income, operating margin,
screens and theatres for the last three fiscal years:

(in millions)                           2000            1999            1998
- --------------------------------------------------------------------------------
Revenues                              $122.3          $111.2           $91.8
Operating income                        22.0            20.4            19.7
Operating margin (% of revenues)        18.0%           18.3%           21.4%
- --------------------------------------------------------------------------------

                                                  Number of screens and
                                                  locations at year-end
                                        2000            1999            1998
- --------------------------------------------------------------------------------
Theatre screens                          470             428             361
Theatre locations                         50              48              46
   Average screens per location          9.4             8.9             7.8
- --------------------------------------------------------------------------------

Total revenues in the theatre division increased 9.9% and 21.2% during fiscal
years 2000 and 1999, respectively, principally as a result of adding additional
screens. Consistent with the Company's long-term strategic plan to focus on
operating large multi-screen theatres, the Company added 42 new screens during
fiscal 2000, including a new 16-screen ultraplex in Oakdale, Minnesota. In
addition, the Company added 19 screens to four existing theatres during fiscal
2000 and added the Company's second large screen IMAX(R) 2D/3D theatre at its
Addison, Illinois location.

The Company also purchased a six-screen theatre during fiscal 2000 in Shakopee,
Minnesota. As of May 25, 2000, the Company operated 445 first-run screens and 25
budget screens. Compared to first-run theatres, budget theatres generally have
lower box office revenues and associated film costs, but higher concession sales
as a percentage of box office revenue.

The Company added 73 new screens during fiscal 1999, including a new 17-screen
ultraplex in suburban Columbus, Ohio. This ultraplex represented the Company's
second theatre in the Columbus market and included the Company's first IMAX(R)
theatre. The Company also purchased three theatres during fiscal 1999 - a
10-screen theatre in Milwaukee; a 14-screen theatre in Elgin, Illinois; and a
10-screen theatre in Wausau, Wisconsin. In addition, the Company added 23
screens to seven existing theatres during fiscal 1999 and converted two screens
at a suburban Milwaukee theatre into its first UltraScreen(TM) - a 75-foot wide,
32-foot high screen nearly three times the size of traditional theatre screens.
The new screens added during fiscal 2000 and fiscal 1999 generated additional
revenues of $13.0 million and $21.9 million, respectively, compared to the
previous years.

Two theatres with a total of six screens were closed during fiscal 1999. These
closed theatres had minimal impact on operations in fiscal 1999.

Revenues for the theatre business and the motion picture industry in general are
heavily dependent on the general audience appeal of available films, together
with studio marketing, advertising and support campaigns, factors over which the
Company has no control. This was particularly evident during the last two fiscal
years. Theatre division revenues were up 27.0% over the prior year at the end of
the first quarter of fiscal 2000, due to the strong summer box office
performance of films such as Star Wars I: The Phantom Menace, The Sixth Sense,
Austin Powers 2: The Spy Who Shagged Me, Runaway Bride, Tarzan and Big Daddy.
With the exception of the films Toy Story 2 and The Green Mile, however, there
was a lack of quality film product during the last three quarters of fiscal
2000, resulting in an increase in total theatre revenues of only 2.6% during the
last three quarters of fiscal 2000 compared to the same period during the prior
year. Similarly, theatre division revenues during fiscal 1999 were up 36% over
the prior year at the end of the second quarter of fiscal 1999, but the lack of
quality and quantity of film product during the second half of fiscal 1999
eliminated the majority of the division's earlier increases. The highest
grossing films during fiscal 1999 included Saving Private Ryan, There's
Something About Mary, Armageddon, Star Wars I: The Phantom Menace, A Bug's Life,
Waterboy, Patch Adams and The Matrix. Comparisons of fiscal 1999 to fiscal 1998
results were also greatly affected by the record-setting box office performance
of the film Titanic during fiscal 1998. Each of the fiscal 2000 films identified
produced box office receipts in excess of $1.7 million for the theatre division
during fiscal 2000. Each of the fiscal 1999 films identified produced box office
receipts in excess of $1.5 million for the theatre division during fiscal 1999.
<PAGE>

The Company played 172, 153 and 162 films at its theatres during fiscal years
2000, 1999 and 1998, respectively. Included in the total films played were 10
IMAX(R) films during fiscal 2000 and 4 IMAX(R) films during fiscal 1999.

Total box office receipts during fiscal 2000 were $81.6 million, an increase of
$7.6 million, or 10.3%, from $74.0 million during fiscal 1999. Fiscal 1999 box
office receipts increased $14.0 million, or 23.4%, compared to fiscal 1998.
These increases were attributable to 3.6% and 21.8% increases in attendance
during fiscal years 2000 and 1999, respectively. The increases in attendance
were due to the increase in new screens each year. Attendance at the Company's
comparable locations decreased 8.4% during fiscal 2000 and 4.1% during fiscal
1999, compared to the previous year. Attendance during both fiscal years was
negatively impacted by additional theatre screens in several of the Company's
markets and the lack of quality and quantity of film product during significant
portions of the year. Attendance during fiscal 1999 was also negatively impacted
by a major winter storm on New Year's weekend during what is traditionally the
largest theatre attendance week of the year. The Company estimates that it lost
approximately $2 million in revenues due to the storm.

The theatre division's average ticket price increased 6.5% and 1.3% during
fiscal 2000 and fiscal 1999, respectively, compared to the prior year. Ticket
prices were increased during fiscal 2000 in order to reflect the significant
investments in stadium seating and digital sound that have been made in the
majority of the division's theatres. First-run theatre average ticket prices
increased 5.6% during fiscal 2000 and 2.2% during fiscal 1999, compared to the
respective prior years.

Concession revenues during fiscal 2000 were $36.5 million, an increase of $3.1
million, or 9.2%, from $33.4 million during fiscal 1999. Fiscal 1999 concession
revenues increased $6.4 million, or 23.9%, from fiscal 1998 concession revenues
of $27.0 million. Concession revenues increased due to increased theatre
attendance from the Company's added screens and the 5.6% and 1.9% increase in
average concession sales per person during fiscal years 2000 and 1999,
respectively. Average concession sales per person are impacted by changes in
concession pricing, types of films played and changes in the Company's
geographic mix of theatre locations.

The theatre division's operating income increased 7.9% during fiscal 2000 and
3.7% during fiscal 1999, compared to the respective prior year's results. The
division's operating margin decreased to 18.0% during fiscal 2000, compared to
18.3% and 21.4% in fiscal 1999 and 1998, respectively. Fiscal 2000 and fiscal
1999 operating margins were impacted by the disappointing film product and
increased occupancy expenses associated with recent capital investments in the
division. The Company believes, however, that its long-term competitive position
has been strengthened as a result of these capital investments. Fiscal 2000 was
further negatively impacted by high film costs associated with the fiscal year's
highest grossing film, Star Wars I: The Phantom Menace and an overall
disappointing performance by the Company's two IMAX(R) theatre screens. Fiscal
2000 and fiscal 1999 operating income was reduced by pre-opening expenses for
new screens of over $400,000 and $700,000, respectively.

                               HOTELS AND RESORTS

The Company's hotels and resorts division contributed 25.5% of the Company's
consolidated revenues and 20.1% of the Company's consolidated operating income,
excluding corporate items, during fiscal 2000. The hotel and resort division
owns and operates two full-service hotels in downtown Milwaukee, Wisconsin, a
full-facility destination resort in Lake Geneva, Wisconsin, a boutique luxury
resort in Indian Wells, California and a full-service hotel in downtown Kansas
City, Missouri. In addition, the Company managed three hotels and a resort
during the majority of the fiscal years presented. The following table sets
forth revenues, operating income, operating margin and rooms data for the hotels
and resorts division for the last three fiscal years:

(in millions)                           2000            1999            1998
- --------------------------------------------------------------------------------
Revenues                               $89.9           $81.2           $70.3
Operating income                        10.8             8.1             7.9
Operating margin (% of revenues)        12.0%           10.0%           11.2%
- --------------------------------------------------------------------------------

                                                 Available rooms at year-end
                                        2000            1999            1998
- --------------------------------------------------------------------------------
Company-owned                          1,683           1,388           1,388
Management contracts                     640             879             879
- --------------------------------------------------------------------------------
   Total rooms managed                 2,323           2,267           2,267
- --------------------------------------------------------------------------------

Total revenues in the hotels and resorts division increased 10.7% and 15.5%
during fiscal 2000 and fiscal 1999, respectively, compared to the prior year.
The division's operating income increased 33.4% during fiscal 2000 and 2.9%
during fiscal 1999, compared to the respective previous years. Division revenues
increased during fiscal 2000 due to increased RevPAR at the Company-owned
properties and the first year of sales of vacation ownership units at the Grand
Geneva Resort & Spa in Lake Geneva, Wisconsin. Improved performance at the
Company's two resorts, the Grand Geneva Resort & Spa and the Miramonte Resort in
Indian Wells, California, contributed to the majority of the increased operating
income during fiscal 2000. Increased RevPAR at the Company-owned properties and
increased management fees, due to improved results at the Company's managed
properties, contributed to the improved operating results during fiscal 1999.
Operating margin declined in fiscal 1999 due to the impact of the first full
year of operation at the Miramonte Resort in Indian Wells, California.

Occupancy and average daily rate increases at the division's comparable owned
properties, in particular the Miramonte Resort, contributed to the increase in
revenues and operating income in both fiscal 2000 and fiscal 1999. As a result
of the

                                       14
<PAGE>
occupancy and average daily rate increases, the division's total RevPAR for
comparable properties increased 3.2% and 10.5% during fiscal 2000 and 1999,
respectively, compared to the prior year. Prior to fiscal 2000, the hotels and
resorts division had experienced double-digit increases in RevPAR for three
consecutive years. This was primarily because, unlike the limited-service
segment of the lodging industry, strong consumer demand in conjunction with a
relatively small increase in industry room supply has resulted in strong
operating results for owners and operators of upper-end hotels and resorts.
During fiscal 2000, there were some minor increases in room supply in the
Company's markets and average daily rate increases slowed, resulting in an
overall RevPAR increase that more closely reflected annual inflation trends. The
Company currently believes that its RevPAR for comparable properties in the
hotel and resort division will continue to increase in fiscal 2001, but at a
rate more reflective of fiscal 2000 results. As a result, operating margins at
comparable properties are not expected to increase significantly during fiscal
2001.

The division acquired a resort in Indian Wells, California in fiscal 1997 and
closed the facility for an extensive renovation. The Company reopened the
property in January 1998 under the name Miramonte Resort. Fiscal 1999 and 1998
results were negatively impacted by approximately $2.0 million and $1.2 million,
respectively, of pre-opening costs and start-up operating losses at the
Miramonte. All pre-opening expenses were fully amortized during fiscal 1999,
which contributed to more favorable comparisons in operating income during
fiscal 2000. During fiscal 1998, the Company entered into a management contract
to operate the Mission Point Resort on Mackinac Island, Michigan. The Mission
Point Resort was a seasonal property and did not materially impact the Company's
fiscal 1998 operating results. The Company discontinued management of the
Mission Point Resort during the third quarter of fiscal 2000. The impact on
future operating results will not be material.

The Company began construction during fiscal 1999 on an extensive addition to
the Hilton Milwaukee City Center. The rooms portion of the addition was opened
during the first quarter of fiscal 2001, making it the largest hotel in
Wisconsin with 730 rooms. The addition will also include a family water park fun
center, scheduled to open in September 2000, and a skywalk to Milwaukee's new
Midwest Express Convention Center. Construction also commenced late in fiscal
1999 on the division's new Hilton Madison at Monona Terrace, a 238-room hotel
connected by skywalk to the Monona Terrace Convention Center in Madison,
Wisconsin and scheduled to open late in fiscal 2001. The Company expects that
its pre-opening expenses during fiscal 2001 related to the opening of this new
hotel will have an adverse impact on fiscal 2001 division operating results.
Late during fiscal 2000, the Company purchased the 240-room Hotel Phillips, a
downtown Kansas City, Missouri landmark property. The Company plans to close the
property during the fall of 2000 and undertake a complete restoration of the
hotel. The Company expects interim operating losses and pre-opening expenses
during fiscal 2001 to have an adverse impact on fiscal 2001 operating results.

The Company began sales and construction of a vacation ownership development at
the Grand Geneva Resort & Spa during fiscal 1999, representing the Company's
entrance into the timesharing business. The first 18 units, a sales center and a
model unit opened in June 2000. During the first three quarters of fiscal 2000,
the Company accounted for all sales of vacation intervals using the deposit
method, deferring all revenue because certain minimum sales levels had not been
reached. During the fourth quarter of fiscal 2000, minimum sales levels were met
and revenues were recognized on the percentage-of-completion method, as
construction was not substantially completed by May 25, 2000. Under this
methodology, the vacation ownership development contributed revenues of $3.9
million during fiscal 2000 and negatively impacted operating income in fiscal
2000 by approximately $500,000 due to start-up selling costs and the fact that
initial sales efforts were limited while the Company obtained the necessary
approvals to sell to Illinois residents. The Company expects the vacation
ownership development to add to division operating income in fiscal 2001.

                            DISCONTINUED OPERATIONS

In September 1999, the Company announced its intention to sell its 30 KFC and
KFC/Taco Bell 2-in-1 restaurants. The Company decided to dispose of its
restaurant business in order to concentrate on its core lodging and theatre
operations. In fiscal years 1995 and 1996, respectively, the Company had
divested its family restaurant business and its Applebee's restaurants. An
agreement entered into by the Company in September 1999 to sell the KFC
restaurants was subsequently terminated during the second quarter. The Company
is currently actively pursuing the sale of the KFC assets, which consist
primarily of land, buildings and equipment. If a sale is consummated, the
Company anticipates that a significant gain from the sale of the assets would be
recognized. Fiscal 2000 results of the restaurant operations have been accounted
for as discontinued operations in the Company's consolidated financial
statements. Rental revenues and operating income resulting from the leasing of
several Company-owned restaurants to restaurant operators, which had previously
been included in restaurant segment results, is now included in corporate items.
Prior year financial results have been restated to conform with the current year
presentation.

The Company has non-exclusive franchise rights to operate KFC restaurants in the
Milwaukee metropolitan area and in northeast Wisconsin. The Company operated 27
KFC restaurants and 3 KFC/Taco Bell 2-in-1 restaurants at the end of fiscal 2000
and fiscal 1999 and 30 KFC restaurants and 1 KFC/Taco Bell 2-in-1 restaurant at
the end of fiscal 1998. The following table sets forth revenues, income from
discontinued operations, net of applicable income taxes, and after-tax operating
margin for the discontinued operations for the last three fiscal years.
<PAGE>

(in millions)                              2000         1999            1998
- --------------------------------------------------------------------------------
Revenues                                  $24.4        $26.9           $26.1
Income from discontinued operations,
  net of applicable income taxes            1.4          2.0             2.1
After-tax operating margin(% of revenues)   5.7%         7.4%            8.0%
- --------------------------------------------------------------------------------

Total revenues from discontinued operations decreased 9.3% during fiscal 2000
and increased 3.3% during fiscal 1999, compared to the respective previous
years. Included in fiscal 1999 revenues was approximately $500,000 of revenues
from a Milwaukee summer festival beer tent previously operated by the Company's
restaurant division. The Company discontinued operation of this tent during
fiscal 2000. Excluding the revenues from the beer tent and $300,000 of revenues
from a KFC restaurant that was sold during fiscal 1999, same store KFC revenues
decreased $1.7 million, or 6.3%, during fiscal 2000 compared to fiscal 1999 KFC
same store revenues of $26.1 million. The decrease in revenues during fiscal
2000 was due primarily to a series of national advertising lunch promotions for
sandwiches that were not as effective as anticipated, the temporary dissolution
of a local advertising co-op due to a dispute among its members, discontinuance
of delivery at several locations and an ineffective national Star Wars
promotion. The co-op has since been reinstated and recent national advertising
is once again focusing on KFC's core chicken-on- the-bone products and specialty
chicken products. During fiscal 2000, same store KFC guest counts decreased 2.5%
and the average guest check decreased 4.4% due primarily to the sandwich
promotions, which emphasized lower priced items yet did not result in
incremental increases in customer counts. Excluding the revenues from the sold
restaurant, same store KFC restaurant revenues increased 5.0% during fiscal
1999. Fiscal 1999 same store KFC guest counts increased 1.9% and average guest
checks increased due to increased snack and lunch-time traffic, the consumer
appeal of the KFC/Taco Bell 2-in-1 concept and the introduction of several new
franchisor products.

The Company's income from discontinued operations, net of applicable income
taxes, decreased 30.2% and 4.9% during fiscal years 2000 and 1999, respectively,
compared to the previous year. Fiscal 2000 income from discontinued operations
decreased due to the reduction in sales, higher chicken prices and higher food
costs associated with selling sandwiches. Although operating income from the
Company's KFC restaurants increased during fiscal 1999, the Company's reported
income from discontinued operations decreased due primarily to a one-time
insurance adjustment from a prior year claim that was settled during fiscal
1999. The Company's comparable KFC restaurants experienced a 2.4% increase in
aggregate operating income during fiscal 1999. Increased food costs resulting
from higher chicken prices limited the increase in operating income in fiscal
1999. The Company converted two KFC restaurants into KFC/Taco Bell 2-in-1 units
and sold one KFC restaurant during fiscal 1999 and converted one KFC restaurant
into a KFC/Taco Bell 2-in-1 unit during fiscal 1998.

                              Financial Condition

The Company's lodging and movie theatre businesses each generate significant and
consistent daily amounts of cash because each segment's revenue is derived
predominantly from consumer cash purchases. The Company believes that these
consistent and predictable cash sources, together with the availability to the
Company of $45 million of unused credit lines at fiscal 2000 year end, should be
adequate to support the ongoing operational liquidity needs of the Company's
businesses. The Company increased its credit lines during fiscal 1999, replacing
several separate lines totaling $90 million with a new five-year $125 million
revolving credit agreement and a separate $5 million line.

Net cash provided by operating activities increased by $7.4 million, or 12.3%,
to $67.3 million in fiscal 2000, compared to $59.9 million in fiscal 1999. The
increase was primarily the result of timing differences in payments of accounts
payable and taxes other than income taxes, net of receipts of accounts and notes
receivable. Development costs incurred during fiscal 2000 associated with the
Company's vacation ownership business reduced the net increase in cash provided
by operating activities. Depreciation and amortization (a non-cash expense)
increased as a result of the Company's increased capital spending program.

Net cash used in investing activities during fiscal 2000 decreased by $22.6
million, or 21.2%, to $84.0 million. The reduction in net cash used in investing
activities was primarily the result of reduced capital expenditures and
increased net proceeds from disposals of property, equipment and other assets.
Total capital expenditures (including normal continuing capital maintenance
projects and business acquisitions) of $99.5 million and $111.8 million were
incurred in fiscal 2000 and 1999, respectively. Capital expenditures and
business acquisitions during fiscal 2000 included $21.2 million incurred on
limited-service lodging division projects, $39.6 million on theatre division
projects and $33.6 million on hotel and resort division projects. During fiscal
1999, $29.7 million was incurred on limited-service lodging division projects,
$64.5 million on theatre division projects and $14.1 million on hotel and resort
division projects. Total capital expenditures in fiscal 2001 are currently not
expected to exceed fiscal 2000 expenditures and are expected to be funded by
cash generated from operations, net proceeds from the disposal of selected
assets and additional debt, including, but not limited to, additional
institutional debt from the Company's private placement program and borrowings
under the Company's revolving credit facility. Fiscal 2001 capital expenditures
on theatre division projects are anticipated to be significantly less than the
prior year and fiscal 2001 capital expenditures on hotels and resorts division
projects may increase. The Company's ability to attract potential partners to
assist in the acquisition and/or development of hotel and resort properties will
impact total capital expenditures during fiscal 2001 for the hotel and resort
division.


                                       16
<PAGE>

Cash proceeds from the disposals of property, equipment and other assets totaled
$15.9 million and $10.5 million during fiscal 2000 and 1999, respectively. The
cash proceeds received during fiscal 2000 were primarily the result of the sale
of four Baymont Inns & Suites, five former restaurant locations and several
parcels of land. The cash proceeds received during fiscal 1999 were primarily
the result of the sale of seven Baymont Inns & Suites, one KFC restaurant and
one bowling alley. During fiscal 1999, the Company expended $3.2 million for the
purchase of interests in several joint ventures in the limited-service lodging
division.

Principally as a result of borrowing a portion of the Company's fiscal 2000
funding used in facility expansions and renovations, the Company's total debt
increased to $302.6 million at the close of fiscal 2000, compared to $274.7
million at the end of fiscal 1999. Net cash provided by financing activities in
fiscal 2000 totaled $16.1 million, compared to $45.5 million in fiscal 1999.
During fiscal 2000, the Company received $38.5 million of net proceeds from the
issuance of notes payable and long-term debt, compared to $76.9 million during
fiscal 1999. Included in the fiscal 1999 proceeds was $40 million in principal
of senior unsecured long-term notes privately placed with two institutional
lenders. The Company has the ability to issue up to $45 million of additional
senior notes under its private placement program. The Company used a portion of
the proceeds from its issued senior notes during fiscal 1999 to pay off existing
short-term debt, resulting in total principal payments on notes payable and
long-term debt of $18.9 million in fiscal 1999 compared to $10.9 million in
fiscal 2000. The Company's debt-capitalization ratio was 0.48 at May 25, 2000,
compared to 0.47 at the prior fiscal year end.

During fiscal 2000, the Company repurchased 528,000 of its common shares for
approximately $5.6 million in the open market compared to 490,000 of common
share repurchases for approximately $7.2 million during fiscal 1999. As of July
20, 2000, the Company had repurchased an additional 214,000 of its common shares
during the first quarter of fiscal 2001. The Company also announced in the first
quarter of fiscal 2001 that its Board of Directors had authorized the repurchase
of up to 2 million additional shares of the Company's outstanding common stock.
If a sale of the restaurant business is consummated, the Company will consider
using a portion of the anticipated proceeds from the sale for its stock
repurchase program. Any such repurchases are expected to be executed on the open
market or in privately negotiated transactions depending upon a number of
factors, including prevailing market conditions.

                    Quantitative and Qualitative Disclosures
                               About Market Risk

The Company is exposed to market risk related to changes in interest rates. The
Company manages its exposure to this market risk through the monitoring of
available financing alternatives.

Variable interest rate risk: The Company's earnings are affected by changes in
short-term interest rates as a result of its borrowings under its revolving
credit agreements, floating-rate mortgages/industrial development revenue bonds
and unsecured term notes not subject to interest rate swap agreements. Based
upon the Company's variable rate debt for such borrowings at May 25, 2000, a 100
basis point increase in market rates would increase interest expense and
decrease earnings before income taxes by approximately $500,000. This
sensitivity analysis does not consider any actions management might take to
mitigate its exposure in the event of a change of such magnitude. The Company's
commercial paper outstanding at May 25, 2000 has been excluded from the above
sensitivity analysis. Although commercial paper is classified as long-term debt
based upon the Company's ability and intent to replace it with long-term
borrowings, all outstanding commercial paper matures within three months of
year-end. As a result, there would be no expected material change in interest
expense or fair market value following a reasonably expected change in interest
rates.

Fixed interest rate risk: The fair value of long-term fixed interest rate debt
may also be subject to interest rate risk. Generally, the fair market value of
fixed interest rate debt will increase as interest rates fall and decrease as
interest rates rise. Based upon the respective rates and prepayment provisions
of the Company's fixed interest rate senior notes and mortgages at May 25, 2000,
the carrying amounts of such debt approximates their fair value.

Interest rate swaps: The Company enters into interest rate swap agreements to
manage its exposure to interest rate changes. The swaps involve the exchange of
fixed and variable interest rate payments without exchanging the notional
principal amount. Payments or receipts on the agreements are recorded as
adjustments to interest expense. At May 25, 2000, the Company had interest rate
swap agreements of $1.5 million, expiring on October 2, 2000, and $7.5 million,
expiring August 6, 2001. The Company pays a defined fixed rate while receiving a
defined variable rate based on LIBOR. Together, these swap agreements
effectively convert $9.0 million of the Company's variable rate unsecured term
notes to a fixed rate. The additional net interest expense recorded in fiscal
2000 and 1999 as a result of the swap agreements was not material. The fair
value of these interest rate swap agreements represents the estimated receipts
or payments that would be made to terminate the agreements. At May 25, 2000, the
fair market value of the Company's swap agreements, as determined by the lender,
is an asset of approximately $69,000.
<PAGE>
<TABLE>
consolidated statements of earnings
<CAPTION>
                                                                                            Year ended
(in thousands, except per share data)                                       May 25, 2000    May 27, 1999    May 28, 1998
- --------------------------------------------------------------------------------------------------------------------------
Revenues:
<S>                                                                             <C>             <C>             <C>
  Rooms and telephone                                                           $170,597        $173,305        $171,668
  Theatre admissions                                                              81,637          74,011          59,969
  Theatre concessions                                                             36,482          33,413          26,968
  Food and beverage                                                               26,614          25,075          22,314
  Other income                                                                    36,788          30,195          27,864
- --------------------------------------------------------------------------------------------------------------------------
Total revenues                                                                   352,118         335,999         308,783

Costs and expenses:
  Rooms and telephone                                                             71,238          70,117          66,644
  Theatre operations                                                              63,999          58,150          46,231
  Theatre concessions                                                              8,887           8,419           7,321
  Food and beverage                                                               20,363          19,446          17,652
  Advertising and marketing                                                       25,969          24,535          21,301
  Administrative                                                                  39,654          37,134          30,403
  Depreciation and amortization                                                   40,458          37,205          31,865
  Rent (Note 10)                                                                   2,954           2,853           2,340
  Property taxes                                                                  14,066          13,498          11,948
  Pre-opening expenses                                                             1,004           1,769           2,041
  Other operating expenses                                                        15,438          14,368          13,012
  Baymont name change (Note 3)                                                         -               -           3,900
- --------------------------------------------------------------------------------------------------------------------------
Total costs and expenses                                                         304,030         287,494         254,658
- --------------------------------------------------------------------------------------------------------------------------

Operating income                                                                  48,088          48,505          54,125

Other income (expense):
  Investment income                                                                1,453             783             834
  Interest expense                                                               (17,975)        (16,846)        (12,612)
  Gain on disposition of property and equipment                                    4,266           2,754           1,537
- --------------------------------------------------------------------------------------------------------------------------
                                                                                 (12,256)        (13,309)        (10,241)
- --------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before income taxes                           35,832          35,196          43,884
Income taxes (Note 9)                                                             14,594          14,238          17,541
- --------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations                                               21,238          20,958          26,343

Discontinued operations (Note 4):
  Income from discontinued operations, net of income
    taxes of $951, $1,346 and $1,395, respectively                                 1,384           1,982           2,095
  Gain on disposal of discontinued operations, net of income
    taxes of $139 and $4 in 1999 and 1998, respectively                                -             204               6
- --------------------------------------------------------------------------------------------------------------------------
Net earnings                                                                    $ 22,622        $ 23,144        $ 28,444
- --------------------------------------------------------------------------------------------------------------------------

Earnings per common share - basic:
  Continuing operations                                                         $    .71        $    .70        $    .88
  Discontinued operations                                                            .05             .07             .07
- --------------------------------------------------------------------------------------------------------------------------
Net earnings per share - basic                                                  $    .76        $    .77        $    .95
- --------------------------------------------------------------------------------------------------------------------------

Earnings per common share - diluted:
  Continuing operations                                                         $    .71        $    .70        $    .87
  Discontinued operations                                                            .05             .07             .07
- --------------------------------------------------------------------------------------------------------------------------
Net earnings per share - diluted                                                $    .76        $    .77        $    .94
- --------------------------------------------------------------------------------------------------------------------------

Weighted average shares outstanding:
  Basic                                                                           29,796          30,005          30,046
  Diluted                                                                         29,828          30,105          30,293
- --------------------------------------------------------------------------------------------------------------------------

See accompanying notes.
</TABLE>

                                       18
<PAGE>

consolidated balance sheets
<TABLE>
(in thousands, except share and per share data)                             May 25, 2000    May 27, 1999
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>

ASSETS
Current assets:
<S>                                                                             <C>             <C>
  Cash and cash equivalents                                                     $  2,935        $  3,499
  Accounts and notes receivable (Note 5)                                          11,908          11,059
  Receivables from joint ventures (Note 11)                                        2,468           1,739
  Refundable income taxes                                                          3,020           6,041
  Real estate and development costs                                                3,917               -
  Other current assets                                                             4,147           4,400
- --------------------------------------------------------------------------------------------------------------------------
Total current assets                                                              28,395          26,738

Property and equipment, net (Note 5)                                             658,317         611,213
Other assets:
  Investments in joint ventures (Notes 10 and 11)                                  2,025           2,045
  Other (Note 5)                                                                  35,039          36,120
- --------------------------------------------------------------------------------------------------------------------------
Total other assets                                                                37,064          38,165
- --------------------------------------------------------------------------------------------------------------------------
Total assets                                                                    $723,776        $676,116
- --------------------------------------------------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Notes payable (Note 11)                                                       $  4,228        $  4,479
  Accounts payable                                                                24,463          22,958
  Taxes other than income taxes                                                   11,219           9,575
  Accrued compensation                                                             4,307           2,617
  Other accrued liabilities                                                       10,026           9,287
  Current maturities of long-term debt (Note 6)                                   16,228          10,470
- --------------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                         70,471          59,386

Long-term debt (Note 6)                                                          286,344         264,270
Deferred income taxes (Note 9)                                                    32,602          31,405
Deferred compensation and other (Note 8)                                           9,112           7,481
Commitments, license rights and contingencies (Note 10)
Shareholders' equity (Note 7):
  Preferred Stock, $1 par; authorized 1,000,000 shares; none issued
  Common Stock:
    Common Stock, $1 par; authorized 50,000,000 shares;
       issued 19,072,617 shares in 2000 and 18,680,508 shares in 1999             19,073          18,681
    Class B Common Stock, $1 par; authorized 33,000,000 shares; issued and
      outstanding 12,116,896 shares in 2000 and 12,509,005 shares in 1999         12,117          12,509
  Capital in excess of par                                                        40,774          40,685
  Retained earnings                                                              268,808         252,498
  Accumulated other comprehensive loss                                              (257)           (214)
- --------------------------------------------------------------------------------------------------------------------------
                                                                                 340,515         324,159
  Less cost of Common Stock in treasury (1,708,247 shares in 2000 and
    1,280,676 shares in 1999)                                                    (15,268)        (10,585)
- --------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                       325,247         313,574
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                      $723,776        $676,116
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes.
<PAGE>
consolidated statements of shareholders' equity
<TABLE>
<CAPTION>
                                                                        Three years ended May 25, 2000
                                                                                             Accumulated
                                                          Class B     Capital                      Other
                                                Common     Common   in Excess     Retained Comprehensive   Treasury
(in thousands, except per share data)            Stock      Stock      of Par     Earnings          Loss      Stock        Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>        <C>         <C>         <C>            <C>       <C>          <C>
BALANCES AT MAY 29, 1997                       $17,518    $13,062     $29,277     $220,860       $     -   $ (3,424)    $277,293
   Cash dividends:
      $.20 per share Class B Common Stock            -          -           -       (2,522)            -          -       (2,522)
      $.22 per share Common Stock                    -          -           -       (3,756)            -          -       (3,756)
   Exercise of stock options                         -          -         339            -             -      1,107        1,446
   Purchase of treasury stock                        -          -           -            -             -     (2,504)      (2,504)
   Savings and profit-sharing contribution           -          -         464            -             -        118          582
   Reissuance of treasury stock                      -          -         266            -             -         71          337
   Conversions of Class B Common Stock             384       (384)          -            -             -          -            -
   Guest House Inn, Inc. acquisition (Note 2)      610          -       9,919       (7,318)            -          -        3,211
   Net earnings                                      -          -           -       28,444             -          -       28,444
- ----------------------------------------------------------------------------------------------------------------------------------

BALANCES AT MAY 28, 1998                        18,512     12,678      40,265      235,708             -     (4,632)     302,531
   Cash dividends:
      $.20 per share Class B Common Stock            -          -           -       (2,524)            -          -       (2,524)
      $.22 per share Common Stock                    -          -           -       (3,830)            -          -       (3,830)
   Exercise of stock options                         -          -          54            -             -        592          646
   Purchase of treasury stock                        -          -           -            -             -     (7,169)      (7,169)
   Savings and profit-sharing contribution           -          -         208            -             -        438          646
   Reissuance of treasury stock                      -          -         158            -             -        186          344
   Conversions of Class B Common Stock  169       (169)         -           -            -             -          -            -
   Components of comprehensive income (loss):
      Net earnings                                   -          -           -       23,144             -          -       23,144
      Change in unrealized loss on available
         for sale investments, net of tax            -          -           -            -          (214)         -         (214)
                                                                                                                          ------
   Total comprehensive income                                                                                             22,930
- ----------------------------------------------------------------------------------------------------------------------------------

BALANCES AT MAY 27, 1999                        18,681     12,509      40,685      252,498          (214)   (10,585)     313,574
   Cash dividends:
      $.20 per share Class B Common Stock            -          -           -       (2,464)            -          -       (2,464)
      $.22 per share Common Stock                    -          -           -       (3,848)            -          -       (3,848)
   Exercise of stock options                         -          -           2            -             -        107          109
   Purchase of treasury stock                        -          -           -            -             -     (5,565)      (5,565)
   Savings and profit-sharing contribution           -          -           6            -             -        544          550
   Reissuance of treasury stock                      -          -          81            -             -        231          312
   Conversions of Class B Common Stock             392       (392)          -            -             -          -            -
   Components of comprehensive income (loss):
      Net earnings                                   -          -           -       22,622             -          -       22,622
      Change in unrealized loss on available
         for sale investments, net of tax            -          -           -            -           (43)         -          (43)
                                                                                                                          ------
   Total comprehensive income                                                                                             22,579
- ----------------------------------------------------------------------------------------------------------------------------------

BALANCES AT MAY 25, 2000                       $19,073    $12,117     $40,774     $268,808         $(257)  $(15,268)    $325,247
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes.


                                       20
<PAGE>
consolidated statements of cash flows
<TABLE>
<CAPTION>
                                                                                             Years ended
(in thousands)                                                              May 25, 2000    May 27, 1999    May 28, 1998
- --------------------------------------------------------------------------------------------------------------------------
Operating Activities
<S>                                                                             <C>             <C>             <C>
Net earnings                                                                    $ 22,622        $ 23,144        $ 28,444
Adjustments to reconcile net earnings to net cash
  provided by operating activities:
   (Earnings) losses on investments in joint ventures,
     net of distributions                                                             20             221             (57)
   Gain on disposition of property and equipment                                  (4,266)         (3,096)         (1,547)
   Impairment of property and equipment                                                -               -           1,521
   Depreciation and amortization                                                  41,485          38,258          32,904
   Deferred income taxes                                                           1,197           4,926           4,054
   Deferred compensation and other                                                 1,631           1,712             400
   Contribution of Company stock to savings and profit-sharing plan                  550             646             582
   Changes in operating assets and liabilities:
     Accounts and notes receivable                                                  (849)          2,489          (8,763)
     Real estate and development costs                                            (3,917)              -               -
     Other current assets                                                            253            (627)           (182)
     Accounts payable                                                              1,505          (3,427)         16,094
     Income taxes                                                                  3,021          (1,656)         (4,437)
     Taxes other than income taxes                                                 1,644          (1,829)          2,107
     Accrued compensation                                                          1,690             (26)          1,373
     Other accrued liabilities                                                       739            (785)           (814)
- --------------------------------------------------------------------------------------------------------------------------
Total adjustments                                                                 44,703          36,806          43,235
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                         67,325          59,950          71,679

Investing Activities
Capital expenditures, including business acquisitions                            (99,492)       (111,843)       (115,880)
Net proceeds from disposals of property, equipment and other assets               15,905          10,509           6,093
Purchase of interest in joint ventures                                                 -          (3,178)              -
(Increase) decrease in other assets                                                  302          (1,688)          1,280
Cash acquired pursuant to Guest House Inn, Inc. acquisition                            -               -           2,589
Cash advanced to joint ventures                                                     (729)           (451)           (222)
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                            (84,014)       (106,651)       (106,140)

Financing Activities
Debt transactions:
  Net proceeds from issuance of notes payable and long-term debt                  38,513          76,944          54,665
  Principal payments on notes payable and long-term debt                         (10,932)        (18,889)        (16,518)
Equity transactions:
  Treasury stock transactions, except for stock options                           (5,253)         (6,825)         (2,167)
  Exercise of stock options                                                          109             646           1,446
  Dividends paid                                                                  (6,312)         (6,354)         (6,278)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                         16,125          45,522          31,148
- --------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents                                           (564)         (1,179)         (3,313)
Cash and cash equivalents at beginning of year                                     3,499           4,678           7,991
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                        $  2,935        $  3,499        $  4,678
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes.
<PAGE>

notes to consolidated financial statements

                   1. Description of Business and Summary of
                         Significant Accounting Policies

Description of Business - The Marcus Corporation and its subsidiaries (the
Company) operate principally in three business segments:

     Limited-Service Lodging: Operates and franchises lodging facilities, under
     the names Baymont Inns, Baymont Inns & Suites and Woodfield Suites,
     primarily located in the eastern half of the United States.

     Theatres: Operates multi-screen motion picture theatres in Wisconsin,
     Illinois, Ohio and Minnesota, and a family entertainment center in
     Wisconsin.

     Hotels/Resorts: Owns and operates full service hotels and resorts in
     Wisconsin, Missouri and California, manages full service hotels in
     Wisconsin, Minnesota and California and operates a vacation ownership
     development in Wisconsin.

In addition, the Company operates KFC restaurants under a license agreement for
certain areas in the state of Wisconsin. The Company has classified the
restaurant operations as discontinued (See Note 4).

Principles of Consolidation - The consolidated financial statements include the
accounts of The Marcus Corporation and all of its subsidiaries. Investments in
50%-owned affiliates are accounted for on the equity method. All intercompany
accounts and transactions have been eliminated in consolidation.

Fiscal Year - The Company reports on a 52/53-week year ending the last Thursday
of May. The discontinued Restaurant segment had a 53-week year in fiscal 1998.
All other segments had 52-week years in each period.

Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Cash Equivalents - The Company considers all highly liquid investments with
maturities of three months or less when purchased to be cash equivalents. Cash
equivalents are carried at cost, which approximates market.

Long-Lived Assets - The Company periodically considers whether indicators of
impairment of long-lived assets held for use (including goodwill) are present.
If such indicators are present, the Company determines whether the sum of the
estimated undiscounted future cash flows attributable to such assets is less
than their carrying amounts. The Company recognizes any impairment losses based
on the excess of the carrying amount of the assets over their value. The Company
evaluated the ongoing value of its property and equipment and other long-lived
assets as of May 25, 2000, May 27, 1999 and May 28, 1998, and determined that
there was no significant impact on the Company's results of operations, other
than the Baymont name change costs described in Note 3.

Capitalization of Interest - The Company capitalizes interest during
construction periods by adding such interest to the cost of property and
equipment. Interest of approximately $2,161,000, $761,000 and $1,601,000 was
capitalized in fiscal 2000, 1999 and 1998, respectively.

Investments - Available for sale securities are stated at fair market value,
with unrealized gains and losses reported as a component of shareholders'
equity. The cost of securities sold is based upon the specific identification
method. Realized gains and losses and declines in value judged to be other than
temporary are included in investment income.

Revenue Recognition - The Company recognizes revenue from its rooms as earned on
the close of business each day. Revenues from theatre admissions, concessions
and food and beverage sales are recognized at the time of sale. Revenues from
advanced ticket and gift certificate sales are recorded as deferred revenue and
are recognized when tickets or gift certificates are used or expire.

The following are included in other income:

The Company has entered into franchise agreements that grant to franchisees the
right to own and operate a Baymont Inn or Baymont Inn & Suites at a particular
location for a specified term, as defined in the license agreement. An initial
franchise fee, as defined in the license agreement, is collected upon receipt of
a prospective licensee's application. A portion of the initial franchise fee is
nonrefundable and recorded as revenue by the Company upon receipt. The remainder
of the initial franchise fee is deferred until operations commence. Direct costs
relating to franchise sales are also recognized when operations commence.
Royalty and marketing fee assessments are recognized when actually earned and
are receivable from the franchisee.

Management fees for hotels and resorts under management agreements are
recognized as earned based on the terms of the agreement.

Sale of vacation intervals are recognized on an accrual basis after a binding
sales contract has been executed, a 10% minimum down payment is received, the
rescission period has expired, construction is substantially complete and
certain minimum sales levels have been reached. If all the criteria are met
except that construction is not substantially complete, revenues are recognized
on the percentage-of-completion basis. For sales that do not qualify for either
accrual or percentage-of-completion accounting, all revenue is deferred using
the deposit method. Deferred revenue is included in other accrued liabilities.
During the first three quarters of fiscal 2000, the Company accounted for all
sales using the deposit method, since certain minimum sales levels had not been
reached. During the fourth quarter of fiscal 2000, when minimum sales levels
were met, revenues have been recognized on the percentage-of-completion method.
Development costs including construction costs, interest and


                                       22
<PAGE>

other carrying costs, which are allocated based on relative sales values, are
included as real estate and development costs in the accompanying consolidated
balance sheets.

Advertising and Marketing Costs - Deferred selling and marketing costs related
to the sale of vacation intervals under the percentage-of-completion method are
included in other current assets. The Company expenses all other advertising and
marketing costs as incurred.

Depreciation and Amortization - Depreciation and amortization of property and
equipment are provided using the straight-line method over the following
estimated useful lives:

                                                                   Years
- ------------------------------------------------------------------------------
Land improvements                                                15 - 39
Buildings and improvements                                       25 - 39
Leasehold improvements                                            3 - 39
Furniture, fixtures and equipment                                 3 - 20
- ------------------------------------------------------------------------------

Pre-opening Expenses - Costs incurred prior to opening new or remodeled
facilities are expensed as incurred.

Net Earnings Per Share - The numerator for the calculation of basic and diluted
earnings per share is net earnings and the denominator is the respective
weighted average shares outstanding. The difference between basic and diluted
weighted average shares outstanding is the dilutive effect of employee stock
options.

Options to purchase 961,403 shares and 499,994 shares of common stock at prices
ranging from $12.00 to $18.13 per share and $14.94 to $18.13 per share were
outstanding at May 25, 2000 and May 27, 1999, respectively, but were not
included in the computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the common shares
and, therefore, the effect would be antidilutive.

Comprehensive Income - Accumulated other comprehensive loss presented in the
accompanying balance sheets consists of the accumulated net unrealized losses on
available for sale securities.

New Accounting Pronouncements - In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 2000. The Statement
will require the Company to recognize all derivatives, including interest rate
swaps, on the balance sheet at fair value, with offset going through income or
other comprehensive income based on the nature of the hedged item. Because of
the Company's minimal use of derivatives, management does not anticipate that
the adoption of the new Statement will have a significant effect on the
Company's financial condition or results of operations.


                                 2. Acquisition

On October 1, 1997, the Company issued 610,173 shares of Common Stock to Guest
House Inn, Inc. (GHI) in exchange for all of the net operating assets of GHI and
issued 449,320 new shares of Class B Common Stock to GHI in exchange for the
cancellation of the existing 449,320 shares of Class B Common Stock owned by
GHI. Share data has been adjusted to reflect the three-for-two stock split (see
Note 7). GHI was owned and controlled by certain officers, directors and/or
principal controlling shareholders of the Company. Based on this common
ownership and control, for financial reporting purposes the assets acquired from
GHI were recorded at the historical book value of GHI rather than fair value.
The common shares issued to complete this transaction were recorded at their
fair value and the excess of this fair value over the historical book value of
the assets acquired was recorded as a distribution.

                             3. Baymont Name Change

On February 10, 1998, the Company announced the name change of its Budgetel Inns
to Baymont Inns and Baymont Inns & Suites. This change was effective in January
1999. As a result of the name change, the Company recorded a $3.9 million
pre-tax charge in fiscal 1998 for the write-off of existing signage ($1.5
million), assistance provided to franchisees ($1.4 million) and other one-time
expenses associated with the name change.

                           4. Discontinued Operations

In September 1999, the Company announced its intention to sell its 30 KFC and
KFC/Taco Bell 2-in-1 restaurants. The Company is currently actively pursuing a
sale of the assets, which consist primarily of land, buildings and equipment. In
accordance with the provisions of Accounting Principles Board Opinion No. 30
concerning reporting the effect of disposal of a segment of a business, the
results of operations of the Restaurant division have been classified as
discontinued in the statement of operations for fiscal 2000. Prior period
financial statements have been restated to conform to the current year
presentation. Restaurant revenues for the years ended May 25, 2000, May 27, 1999
and May 28, 1998, were $24,425,000, $26,928,000 and $26,056,000, respectively.

                    5. Additional Balance Sheet Information

The composition of accounts and notes receivable is as follows:

(in thousands)                           May 25, 2000    May 27, 1999
- ---------------------------------------------------------------------
Trade receivables                            $  4,924        $  5,888
Notes receivable for
  interval ownership                              195               -
Other notes receivables                         3,238           2,176
Employee advances                                  12              14
Other receivables                               3,539           2,981
- ---------------------------------------------------------------------
                                              $11,908         $11,059
- ---------------------------------------------------------------------
<PAGE>

The Company also has notes receivable for interval ownership totaling $1,899,000
which are included in other long-term assets, net of a reserve for uncollectible
amounts of $217,000 as of May 25, 2000. The notes bear fixed-rate interest
between 11.0% and 15.9% over the seven-year terms of the loans. The
weighted-average rate of interest on outstanding notes receivable for interval
ownership is 14.9%. The notes are collateralized by the underlying vacation
intervals.

The composition of property and equipment, which is stated at cost, is as
follows:

(in thousands)                           May 25, 2000    May 27, 1999
- ---------------------------------------------------------------------
Land and improvements                       $  96,158       $  88,221
Buildings and improvements                    514,734         481,517
Leasehold improvements                          7,649           6,963
Furniture, fixtures and equipment             231,643         213,408
Construction in progress                       48,152          28,620
- ---------------------------------------------------------------------
                                              898,336         818,729
Less accumulated depreciation
  and amortization                            240,019         207,516
- ---------------------------------------------------------------------
                                             $658,317        $611,213
- ---------------------------------------------------------------------

                               6. Long-Term Debt

Long-term debt is summarized as follows:

(in thousands, except payment data)      May 25, 2000    May 27, 1999
- ---------------------------------------------------------------------
Mortgage notes due to 2009                 $    4,836      $    5,768
Industrial Development Revenue
  Bonds due to 2006                             5,748           6,250
Senior notes due May 31, 2005,
   with monthly principal and interest
   payments of $362,346, bearing
   interest at 10.22%                          17,183          19,637
Senior notes                                  155,000         155,000
Unsecured term notes                           34,967          40,621
Commercial paper                               59,838          37,464
Revolving credit agreements                    25,000          10,000
- ---------------------------------------------------------------------
                                              302,572         274,740
Less current maturities                        16,228          10,470
- ---------------------------------------------------------------------
                                             $286,344        $264,270
- ---------------------------------------------------------------------

Substantially all of the mortgage notes, both fixed rate and adjustable, bear
interest from 6.50% to 9.50% at May 25, 2000. The Industrial Revenue Bonds, both
fixed rate and adjustable, bear interest from 4.50% to 8.77%. The mortgage notes
and the Industrial Development Revenue Bonds are secured by the related land,
buildings and equipment.

The $155 million of senior notes maturing in 2008 through 2014 require annual
principal payments in varying installments beginning October 15, 2000, and bear
interest payable semiannually at fixed rates ranging from 6.66% to 7.51% with a
weighted average fixed rate of 7.13%.

The Company has unsecured term notes outstanding as follows:

                                                   May 25,         May 27,
(in thousands, except payment data)                   2000            1999
- --------------------------------------------------------------------------
Note due May 31, 2004, with quarterly
principal payments of $781,250.
The variable interest rate is based on the
LIBOR rate with an effective rate of 7.40%
at May 25, 2000, and is payable quarterly.         $12,500         $14,844

Note due February 1, 2004. The variable
interest rate is based on the LIBOR rate
with an effective rate of 7.23% at
May 25, 2000, and is payable quarterly.             20,000          20,000

Note due October 1, 2000, with quarterly
principal payments of $750,000.
The variable interest rate is based on the
LIBOR rate with an effective rate of 6.28%
at May 25, 2000, and is payable quarterly.           1,500           4,500

Note due April 28, 2003, with monthly
payments of $20,267, including interest
at 2%.                                                 650             893

Note due March 25, 2004, with monthly
payments of $7,733, including interest
at 6%.                                                 317             384
- --------------------------------------------------------------------------
                                                   $34,967         $40,621
- --------------------------------------------------------------------------

The Company issues commercial paper through an agreement with three banks, up to
a maximum of $70,000,000, which bears interest at rates ranging from 6.20% to
6.85% at May 25, 2000. The agreements require the Company to maintain unused
bank lines of credit at least equal to the principal amount of outstanding
commercial paper.

At May 25, 2000, the Company had credit lines totaling $130,000,000 in place.
Borrowings on the $125,000,000 line, which total $25,000,000 at May 25, 2000,
bear interest at LIBOR plus a margin which adjusts based on the Company's
borrowing levels (effectively 7.08% at May 25, 2000). This agreement matures in
2004 and requires an annual facility fee of .2% on the total commitment. Based
on borrowings and commercial paper outstanding, availability under this line at
May 25, 2000, totaled $40,162,000. There are no borrowings outstanding on the
remaining $5,000,000 line at May 25, 2000, which bears interest at the bank's
prime reference rate (effectively 9.5% at May 25, 2000).

The Company has the ability and intent to replace commercial paper borrowings
with long-term borrowings under its $125,000,000 revolving credit facility
agreement. Accordingly, the Company has classified these borrowings at May 25,
2000, as long-term.

                                       24
<PAGE>

Scheduled annual principal payments on long-term debt for the five years
subsequent to May 25, 2000, are:

Fiscal Year                                         (in thousands)
- -----------------------------------------------------------------
2001                                                     $ 16,228
2002                                                       18,053
2003                                                       16,836
2004                                                      103,255
2005                                                       15,682
- -----------------------------------------------------------------

Interest paid, net of amounts capitalized, in 2000, 1999 and 1998 totaled
$17,906,000, $16,363,000 and $13,179,000, respectively.

The Company has a swap agreement covering $1,500,000, which is reduced by
$750,000 quarterly, expires October 2, 2000, and requires the Company to pay
interest at a defined fixed rate of 5.08% while receiving interest at a defined
variable rate of three-month LIBOR (6.83% at May 25, 2000). The Company also has
a swap agreement covering $7,500,000 which expires August 6, 2001, and requires
the Company to pay interest at a defined fixed rate of 6.56% while receiving
interest at a defined variable rate of three-month LIBOR (6.83% at May 25,
2000). Together, these swap agreements effectively convert $9,000,000 of the
Company's variable rate unsecured term notes to a fixed rate. The Company
recorded net interest expense related to these swap agreements as incurred,
totaling $21,000, $63,000 and $3,000 in 2000, 1999 and 1998, respectively. The
accompanying consolidated balance sheet at May 25, 2000, does not reflect the
fair market value of the remaining swap agreements as determined by the lender,
which totals an asset of approximately $69,000.

The fair value of the Company's $155 million of senior notes is approximately
$145 million. The carrying amounts of the Company's remaining long-term debt,
based on the respective rates and prepayment provisions of the senior notes due
May 31, 2005, approximate their fair value.

                            7. Shareholders' Equity

The Company's Board of Directors declared a three-for-two stock split, effected
in the form of a 50% stock dividend, which was distributed on December 5, 1997,
to all holders of common and Class B common stock. Shareholders' equity and all
share and per share amounts have been adjusted to reflect these dividends.

Shareholders may convert their shares of Class B Common Stock into shares of
Common Stock at any time. Class B Common Stock shareholders are substantially
restricted in their ability to transfer their Class B Common Stock. Holders of
Common Stock are entitled to cash dividends per share equal to 110% of all
dividends declared and paid on each share of the Class B Common Stock. Holders
of Class B Common Stock are entitled to ten votes per share while holders of
Common Stock are entitled to one vote per share on any matters brought before
the shareholders of the Company. Liquidation rights are the same for both
classes of stock.

Shareholders have approved the issuance of up to 3,237,500 shares of Common
Stock under various stock option plans. The options generally become exercisable
40% after two years, 60% after three years and 80% after four years. The
remaining options are exercisable five years after the date of the grant. At May
25, 2000, there were 2,466,233 shares available for grants under the plans.

The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB No. 25), in accounting for its
employee stock options. Under APB No. 25, because the number of shares is fixed
and the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.

Pro forma information regarding net earnings and earnings per share required by
SFAS No. 123, "Accounting for Stock Based Compensation," has been determined as
if the Company had accounted for its employee stock options under the fair value
method of that statement. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
assumptions for 2000, 1999 and 1998, respectively: risk-free interest rates of
6.0%, 4.6% and 5.2%; dividend yield of 1.3% in all years; volatility factors of
the expected market price of the Company's common stock of 49% for 2000 and 1999
and 48% for 1998, and an expected life of the option of approximately six years.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Had compensation cost
been determined based upon the fair value at the grant date for awards under the
plans based on the provisions of SFAS No. 123, the Company's pro forma net
earnings and earnings per share would have been as follows:

                                                            Year ended
                                                 May 25,     May 27,   May 28,
(in thousands, except per share data)               2000        1999      1998
- --------------------------------------------------------------------------------
Pro forma net earnings:
   Pro forma earnings from
      continuing operations                      $20,440     $20,391    $25,941
   Discontinued operations:
      Income from discontinued
         operations, net of
         applicable income taxes                   1,384       1,982      2,095
      Gain on disposal of
         discontinued operations,
         net of applicable income
              taxes                                    -         204          6
- --------------------------------------------------------------------------------
   Pro forma net earnings                        $21,824     $22,577    $28,042
- --------------------------------------------------------------------------------

Pro forma earnings per
   common share - basic and
   diluted:
      Continuing operations                         $.68        $.68       $.86
      Discontinued operations                        .05         .07        .07
- --------------------------------------------------------------------------------
   Pro forma net earnings per
      share - basic and diluted                     $.73        $.75       $.93
- --------------------------------------------------------------------------------

<PAGE>

A summary of the Company's stock option activity and related information
follows:

                             May 25, 2000        May 27, 1999       May 28, 1998
                                Weighted-           Weighted-          Weighted-
                                  Average             Average            Average
                                 Exercise            Exercise           Exercise
(options in thousands)  Options     Price   Options     Price  Options     Price
- --------------------------------------------------------------------------------
Outstanding at
   beginning of
   year                     947    $14.17       840    $13.04      828    $11.72
Granted                     404     12.06       203     16.83      180     16.52
Exercised                   (11)     9.61       (79)     8.54     (145)     9.48
Forfeited                  (138)    15.11       (17)    16.41      (23)    15.34
- --------------------------------------------------------------------------------
Outstanding at
   end of year            1,202    $13.37       947    $14.17      840    $13.04
- --------------------------------------------------------------------------------
Exercisable at
   end of year              543    $12.53       458    $11.91      389    $10.66
- --------------------------------------------------------------------------------
Weighted-average
   fair value of
   options granted
   during year                 $5.89                $7.88             $7.77

Exercise prices for options outstanding as of May 25, 2000, ranged from $6.67 to
$18.13. The weighted-average remaining contractual life of those options is 6.7
years. Additional information related to these options segregated by exercise
price range is as follows:

                                              Exercise price range
                                 $6.67 to        $10.876 to      $14.51 to
(options in thousands)            $10.875            $14.50        $18.125
- -----------------------------------------------------------------------------
Options outstanding                   161               639            402
Weighted-average exercise
  price of options outstanding      $9.10            $12.32         $16.74
Weighted-average remaining
  contractual life of
  options outstanding                 5.0               6.8            7.2
- -----------------------------------------------------------------------------
Options exercisable                   111               311            121
Weighted-average exercise
  price of options exercisable      $8.55            $12.33         $16.67
- -----------------------------------------------------------------------------

Through May 25, 2000, the Company's Board of Directors has approved the
repurchase of up to 2,687,500 shares of Common Stock to be held in treasury. The
Company intends to reissue these shares upon the exercise of stock options and
for savings and profit-sharing contributions. The Company purchased 527,617,
490,360 and 145,297 shares pursuant to these authorizations during 2000, 1999
and 1998, respectively. At May 25, 2000, there were 344,496 shares available for
repurchase under these authorizations. Subsequent to May 25, 2000, the Company's
Board of Directors approved the repurchase of an additional 2,000,000 shares of
Common Stock to be held in treasury.

The Company's Board of Directors has authorized the issuance of up to 750,000
shares of Common Stock for The Marcus Corporation Dividend Reinvestment and
Associate Stock Purchase Plan. At May 25, 2000, there were 670,794 shares
available under this authorization.

The Company's loan agreements include, among other covenants, restrictions on
retained earnings and maintenance of certain financial ratios. At May 25, 2000,
retained earnings of approximately $73,078,000 were unrestricted.

                           8. Employee Benefit Plans

The Company has a qualified profit-sharing savings plan (401(k) plan) covering
eligible employees. The 401(k) plan provides for a contribution of a minimum of
1% of defined compensation for all plan participants and matching of 25% of
employee contributions up to 6% of defined compensation. In addition, the
Company may make additional discretionary contributions. The Company also
sponsors unfunded nonqualified defined benefit and deferred compensation plans.
Pension and profit-sharing expense for all plans was $1,805,000, $1,825,000 and
$1,814,000 for fiscal 2000, 1999 and 1998, respectively.

                                9. Income Taxes

Income tax expense consists of the following:

                                                 Year ended
(in thousands)                 May 25, 2000    May 27, 1999    May 28, 1998
- ----------------------------------------------------------------------------
Currently payable:
   Federal                          $11,031        $  8,616         $12,173
   State                              3,317           2,181           2,713
Deferred                              1,197           4,926           4,054
- ----------------------------------------------------------------------------
                                    $15,545         $15,723         $18,940
- ----------------------------------------------------------------------------

Income tax expense is included in the accompanying consolidated statements of
earnings as follows:

                                                 Year ended
(in thousands)                 May 25, 2000    May 27, 1999    May 28, 1998
- ----------------------------------------------------------------------------
Continuing
   operations                       $14,594         $14,238         $17,541
Discontinued
   operations                           951           1,485           1,399
- ----------------------------------------------------------------------------
                                    $15,545         $15,723         $18,940
- ----------------------------------------------------------------------------

The Company recognizes deferred tax assets and liabilities based upon the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under the liability method, deferred tax
assets and liabilities are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates for the year in which the differences are expected to reverse.


                                       26
<PAGE>

The components of the net deferred tax liability were as follows:

(in thousands)                                 May 25, 2000    May 27, 1999
- ----------------------------------------------------------------------------
Deferred tax assets:
  Accrued employee benefits                         $ 2,689         $ 2,586
  Other                                                 295             813
- ----------------------------------------------------------------------------
Total deferred tax assets                             2,984           3,399

Deferred tax liability -
  Depreciation and amortization                      35,586          34,804
- ----------------------------------------------------------------------------
Net deferred tax liability
  included in balance sheet                         $32,602         $31,405
- ----------------------------------------------------------------------------

A reconciliation of the statutory federal tax rate to the effective tax rate
follows:

                                                 Year ended
                                    May 25,         May 27,         May 28,
                                       2000            1999            1998
- ----------------------------------------------------------------------------
Statutory federal tax rate             35.0%           35.0%           35.0%
State income taxes,
  net of federal income
  tax benefit                           5.9             5.5             5.1
Other                                   (.2)              -             (.1)
- ----------------------------------------------------------------------------
                                       40.7%           40.5%           40.0%
- ----------------------------------------------------------------------------

Income taxes paid, net of refunds received, in 2000, 1999 and 1998 totaled
$11,484,000, $11,760,000 and $19,323,000, respectively.

10. Commitments, License Rights and Contingencies

Lease Commitments - The Company leases real estate under various noncancellable
operating leases with an initial term greater than one year. Percentage rentals
are based on the revenues at the specific rented property. Certain sublease
agreements include buyout incentives. Rent expense charged to operations under
these leases, including rent for discontinued operations, was as follows:

                                                 Year ended
                                    May 25,         May 27,         May 28,
(in thousands)                         2000            1999            1998
- ----------------------------------------------------------------------------
Fixed minimum rentals                $2,966          $3,231          $2,733
Percentage rentals                      174             203             188
Sublease rental income                 (130)           (131)           (182)
- ----------------------------------------------------------------------------
                                     $3,010          $3,303          $2,739
- ----------------------------------------------------------------------------

Payments to affiliated parties for lease obligations were approximately
$176,000, $44,000 and $144,000 in fiscal 2000, 1999 and 1998, respectively.


Aggregate minimum rental commitments at May 25, 2000, are as follows:

Fiscal Year                                                (in thousands)
- ----------------------------------------------------------------------------
2001                                                          $ 2,318
2002                                                            2,230
2003                                                            1,987
2004                                                            1,372
2005                                                            1,399
After 2005                                                     17,687
- ----------------------------------------------------------------------------
                                                              $26,993
- ----------------------------------------------------------------------------

Included in the above commitments is $2,741,000 in minimum rental commitments to
affiliated parties.

Commitments - The Company has commitments for the completion of construction at
various properties and the purchase of various properties totaling approximately
$24,755,000 at May 25, 2000.

License Rights - The Company owns the license rights in certain areas to operate
its restaurants and to sell products using the KFC trademark. In addition, the
Company has license rights to operate a hotel using the Hilton trademark. Under
the terms of the licenses, the Company is obligated to pay fees based on defined
gross sales. The KFC license also requires the Company to pay an additional fee
for each new location established.

Contingencies - The Company guarantees the debt of joint ventures and other
entities totaling approximately $20,982,000 at May 25, 2000. The debt of the
joint ventures is collateralized by the real estate, buildings and improvements
and all equipment of each joint venture.

                         11. Joint Venture Transactions

At May 25, 2000 and May 27, 1999, the Company held investments of $2,025,000 and
$2,045,000, respectively, in various 50%-owned affiliates (joint ventures) which
are accounted for under the equity method.

The Company has receivables from the joint ventures of $2,468,000 and $1,739,000
at May 25, 2000 and May 27, 1999, respectively. The Company earns interest on
$1,528,000 and $907,000 of the receivables at approximately prime to prime plus
1.5% at May 25, 2000 and May 27, 1999, respectively.

Included in notes payable at May 25, 2000 and May 27, 1999, is $1,178,000 and
$1,276,000, respectively, due to joint ventures in connection with cash advanced
to the Company. The Company pays interest on the cash advances based on the
90-day certificate of deposit rates.

<PAGE>

                        12. Business Segment Information

The Company evaluates performance and allocates resources based on the operating
income (loss) of each segment. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies.

Following is a summary of business segment information for 1998 through 2000:
<TABLE>
<CAPTION>

                                         Limited-                                           Continuing
                                          Service                   Hotels/    Corporate    Operations   Discontinued
(in thousands)                            Lodging    Theatres       Resorts        Items         Total    Restaurants      Total
- ----------------------------------------------------------------------------------------------------------------------------------

2000
<S>                                      <C>          <C>        <C>            <C>           <C>             <C>       <C>
Revenues                                 $138,183     $122,254   $  89,854      $  1,827      $352,118        $24,425   $376,543
Operating income (loss)                    20,993       22,007      10,806        (5,718)       48,088          2,342     50,340
Depreciation and amortization              19,041       11,696       7,962         1,759        40,458          1,027     41,485
Assets                                    284,698      234,317     141,027        51,979       712,021         11,755    723,776
Capital expenditures,
  including business acquisitions          21,215       39,559      33,562         4,204        98,540            952     99,492
- ----------------------------------------------------------------------------------------------------------------------------------

1999
Revenues                                 $141,577     $111,249   $  81,169      $  2,004      $335,999        $26,928   $362,927
Operating income (loss)                    25,509       20,395       8,103        (5,502)       48,505          3,331     51,836
Depreciation and amortization              18,922        9,505       7,369         1,409        37,205          1,053     38,258
Assets                                    290,878      203,737     107,367        61,994       663,976         12,140    676,116
Capital expenditures,
  including business acquisitions          29,730       64,525      14,060         2,192       110,507          1,336    111,843
- ----------------------------------------------------------------------------------------------------------------------------------

1998
Revenues                                 $144,713    $  91,825   $  70,305      $  1,940      $308,783        $26,056   $334,839
Operating income (loss)                    31,479       19,676       7,874        (4,904)       54,125          3,494     57,619
Depreciation and amortization              17,910        6,069       6,649         1,237        31,865          1,039     32,904
Assets                                    292,571      149,491     102,923        51,210       596,195         12,309    608,504
Capital expenditures,
  including business acquisitions          25,241       59,440      24,903         5,727       115,311            569    115,880
- ----------------------------------------------------------------------------------------------------------------------------------

(1) Includes a $3.9 million charge related to the Baymont name change.
</TABLE>

Corporate items include amounts not allocable to the business segments.
Corporate revenues consist principally of rent and the corporate operating loss
includes general corporate expenses. Corporate assets primarily include cash and
cash equivalents, notes receivable, receivables from joint ventures and land
held for development. Rental revenues, operating income, depreciation and
amortization and assets resulting from the leasing of several Company-owned
restaurants to restaurant operators, which had previously been included in
restaurant segment results, are now included in corporate items.


                                       28
<PAGE>

auditor's report and management statement

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders of The Marcus Corporation

We have audited the accompanying consolidated balance sheets of The Marcus
Corporation (the Company) as of May 25, 2000 and May 27, 1999, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the three years in the period ended May 25, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company at May
25, 2000 and May 27, 1999, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended May 25, 2000, in
conformity with accounting principles generally accepted in the United States.


                                                       /s/ Ernst & Young

Milwaukee, Wisconsin
July 14, 2000


        STATEMENT OF MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS

The management of The Marcus Corporation and its subsidiaries is responsible for
the preparation of the financial and operating information contained in this
annual report, including the consolidated financial statements audited by Ernst
& Young LLP, independent auditors. These statements were prepared in conformity
with accounting principles generally accepted in the United States and include
amounts that are based on the best estimates and judgments of management.

A system of internal financial controls provides management with reasonable
assurance that transactions are recorded and executed as authorized, that assets
are properly safeguarded and accounted for, and that records are maintained to
permit preparation of financial statements in accordance with accounting
principles generally accepted in the United States. The Company also has
policies and guidelines that require employees to maintain a high level of
ethical standards.

The Audit Committee of the Board of Directors is composed entirely of outside
directors and has unrestricted access to representatives of Ernst & Young LLP.


/s/ Stephen H. Marcus                     /s/ Douglas A. Neis
Stephen H. Marcus                         Douglas A. Neis
Chairman and Chief Executive Officer      Chief Financial Officer and Treasurer
<PAGE>

eleven-year financial summary
<TABLE>
<CAPTION>

                                 2000     1999   1998(2)  1997      1996(3)    1995    1994(4)     1993     1992     1991     1990
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS
(in thousands)
<S>                          <C>       <C>      <C>      <C>       <C>      <C>       <C>       <C>      <C>      <C>      <C>
Revenues(6)                  $352,118  335,999  308,783  277,643   237,937  204,627   172,210   153,896  148,187  133,368  122,237
Earnings from continuing
   operations(6)             $ 21,238   20,958   26,343   29,254    27,885        -         -         -        -        -        -
Net earnings                 $ 22,622   23,144   28,444   30,881    42,307   24,136    22,829    16,482   13,289   11,618   10,781
- ----------------------------------------------------------------------------------------------------------------------------------

COMMON STOCK DATA(1)
Earnings per share -
   continuing operations(6)  $    .71      .70      .87      .98       .94        -         -         -        -        -        -
Net earnings per share       $    .76      .77      .94     1.04      1.42      .82       .77       .63      .52      .45      .42
Cash dividends per share     $    .22      .22      .22      .20       .23      .15       .13       .11      .10      .09      .08
Weighted average shares
  outstanding (in thousands)   29,828   30,105   30,293   29,745    29,712   29,537    29,492    26,208   25,325   25,569   25,839
Book value per share         $  11.03    10.48    10.00     9.37      8.51     7.29      6.61      5.95     4.97     4.54     4.17
- ----------------------------------------------------------------------------------------------------------------------------------

FINANCIAL POSITION
(in thousands)
Total assets                 $723,776  676,116  608,504  521,957   455,315  407,082   361,606   309,455  274,394  255,117  230,789
Long-term debt               $286,344  264,270  205,632  168,065   127,135  116,364   107,681    78,995  100,032   96,183   85,563
Shareholders' equity         $325,247  313,574  302,531  277,293   251,248  214,464   193,918   173,980  124,874  114,697  106,983
Capital expenditures,
   including business
   acquisitions              $ 99,492  111,843  115,880  107,514    83,689   77,083    75,825    47,237   27,238   39,861   42,385
- ----------------------------------------------------------------------------------------------------------------------------------

FINANCIAL RATIOS
Current ratio                     .40      .45      .43      .39       .62      .41       .67       .90      .73      .65      .91
Debt/capitalization ratio         .48      .47      .42      .39       .35      .37       .37       .34      .46      .47      .45
Return on average
  shareholders' equity            7.1%     7.5%     9.8%    11.7%     18.2%    11.8%     12.4%     11.0%    11.1%    10.5%   10.5%
- ----------------------------------------------------------------------------------------------------------------------------------


(1)  All per share and shares outstanding data is on a diluted basis and has been adjusted to reflect stock splits in 1998, 1996
     and 1993.
(2)  Includes charge of $2.34 million or $0.08 per share for costs associated with the Baymont name change.
(3)  Includes gain of $14.8 million or $0.49 per share on sale of certain restaurant locations.
(4)  Includes gain of $1.8 million or $0.06 per share for cumulative effect of change in accounting for income taxes.
(5)  Includes annual dividend of $0.18 per share and one quarterly dividend of $0.05 per share.
(6)  Restated to conform to the fiscal 2000 presentation of restaurant operations as discontinued operations. Earnings from
     continuing operations and earnings per share - continuing operations were restated for 1996 through 1999.
</TABLE>


                                       30
<PAGE>

quarterly information and stock prices


SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands except per share data)

                                               13 Weeks Ended
                              August 26,   November 25,  February 24,   May 25,
Fiscal 2000                         1999           1999          2000      2000
- -------------------------------------------------------------------------------
Revenues                        $107,717        $80,244       $77,439   $86,718
Operating incom                   24,500          9,854         5,197     8,537
Net earnings                      13,170          5,588           881     2,983
Net earnings per diluted share       .44            .19           .03       .10
- -------------------------------------------------------------------------------

                                               13 Weeks Ended
                              August 27,   November 26,  February 25,   May 27,
Fiscal 1999                         1998           1998          1999      1999
- -------------------------------------------------------------------------------
Revenues(1)                     $ 99,978        $78,641       $75,519   $81,861
Operating income(1)               25,162         11,703         4,640     7,000
Net earnings                      14,191          5,889           513     2,551
Net earnings per diluted share       .47            .20           .02       .09
- -------------------------------------------------------------------------------


(1) Revenues and operating income as previously reported in the Company's
quarterly reports differ from amounts set forth above because of the
classification of the Company's restaurant operations as discontinued operations
as more fully described in Note 4 of the Notes to Consolidated Financial
Statements. The quarterly revenue and operating income have been restated to
reflect only the Company's continuing operations. In addition, certain other
reclassifications were made to revenues in order to conform to the current year
presentation. There was no effect on previously reported net earnings.

<TABLE>
<CAPTION>
                                                          13 Weeks Ended
                                             August 27,    November 26,   February 25,        May 27,
                                                   1998            1998           1999           1999
<S>                                            <C>              <C>            <C>            <C>
- --------------------------------------------------------------------------------------------------------
Revenues as previously reported                $107,360         $87,994        $82,269        $85,304
Less revenues of discontinued operations         (7,382)         (6,796)        (6,246)        (6,504)
Other reclassifications                               -          (2,557)          (504)         3,061
- --------------------------------------------------------------------------------------------------------
Revenues as restated                            $99,978         $78,641        $75,519        $81,861
- --------------------------------------------------------------------------------------------------------

Operating income as previously reported         $26,098         $12,711         $5,280         $7,747
Less operating income of discontiued operations    (936)         (1,008)          (640)          (747)
- --------------------------------------------------------------------------------------------------------
Operating income as restated                    $25,162         $11,703         $4,640         $7,000
- --------------------------------------------------------------------------------------------------------

</TABLE>

LAST SALE PRICE RANGE OF COMMON STOCK

Fiscal 2000             1st Quarter  2nd Quarter   3rd Quarter   4th Quarter
- ------------------------------------------------------------------------------
High                         $13.25       $14.25        $14.06        $12.94

Low                           11.44        10.75          9.50          8.38
- ------------------------------------------------------------------------------


Fiscal 1999             1st Quarter  2nd Quarter    3rd Quarter  4th Quarter
- ------------------------------------------------------------------------------
High                         $18.19       $16.56        $16.25        $14.19

Low                           14.00        12.50         12.50         10.94
- ------------------------------------------------------------------------------

On August 11, 2000, there were 2,253 shareholders of record for the Common Stock
and 49 shareholders of record for the Class B Common Stock.
<PAGE>

corporate information

ANNUAL MEETING

Shareholders are invited to attend The Marcus Corporation's 2000 Annual Meeting
at 10:00 a.m. on Monday, September 25, 2000, at the Hilton Milwaukee City
Center, 509 West Wisconsin Avenue, Milwaukee, Wisconsin.

DIVIDEND REINVESTMENT PLAN

The Marcus Corporation has a dividend reinvestment plan through which
shareholders of record may invest their cash dividends and make supplemental
cash investments in additional shares. There are no commissions or service
charges to purchase shares. For additional information, write or call:

        Firstar Bank, N.A.
        P.O. Box 2077
        Milwaukee, WI 53201-2077
        (800) 637-7549

Members of the National Association of Investors Corporation (NAIC) may also
participate in The Marcus Corporation's Dividend Reinvestment Plan through the
NAIC Low Cost Investment Plan.

STOCK LISTING AND SYMBOL
The Marcus Corporation common stock is traded on the
New York Stock Exchange under the symbol MCS.

FORM 10-K REPORT
A copy of the company's fiscal 2000 Form 10-K annual report (without exhibits)
filed with the Securities and Exchange Commission is available to shareholders,
without charge, by contacting the corporate secretary at the company's address.

TRANSFER AGENT
Firstar Bank, N.A.
P.O. Box 2077
Milwaukee, WI  53201-2077
(800) 637-7549

LEGAL COUNSEL
Foley & Lardner o Milwaukee, Wisconsin


INDEPENDENT AUDITORS
Ernst & Young LLP o Milwaukee, Wisconsin

CORPORATE HEADQUARTERS
The Marcus Corporation
250 East Wisconsin Avenue  Suite 1700
Milwaukee, Wisconsin  53202-4220
(414) 905-1000




                                       33
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>SUBSIDIARY LIST
<TEXT>


                                                                      Exhibit 21

                           Subsidiaries of the Company
                              as of July 31, 2000


       The Company owns all of the stock of the following corporations:

       Name                                               State of Incorporation

       Marcus Theatres Corporation                        Wisconsin
       Marcus Restaurants, Inc.                           Wisconsin
       B & G Realty, Inc.                                 Wisconsin
       First American Finance Corporation                 Wisconsin
       Marcus Geneva, Inc.                                Wisconsin
       Marcus Hotels, Inc.                                Wisconsin
       Baymont Inns, Inc.                                 Wisconsin
       Woodfield Suites, Inc.                             Wisconsin

       Woodfield Suites, Inc. owns all of the stock of the following
corporations:

       Name                                               State of Incorporation

       Woodfield Suites Hospitality Corporation           Wisconsin
       Woodfield Suites Franchises International Inc.     Wisconsin

       Woodfield Suites Hospitality Corporation owns all of the stock of the
following corporation:

       Name                                               State of Incorporation

       Woodfield Refreshments, Inc.                       Wisconsin

       Woodfield Refreshments, Inc. owns all of the stock of the following
corporation:

       Name                                               State of Incorporation

       Woodfield Refreshments of Texas, Inc.              Texas

       Marcus Theatres Corporation owns all of the stock or units of the
following corporations and limited liability companies:

       Name                                               State of Incorporation
                                                           or Organization

       Marcus Cinemas of Minnesota & Illinois, Inc.       Illinois
       Marcus Cinemas of Ohio, LLC                        Wisconsin
       Family Entertainment, LLC                          Wisconsin



                                       1
<PAGE>

       Except as set forth below, Marcus Cinemas of Minnesota & Illinois, Inc.
owns all of the units of the following limited liability company:

       Name                                               State of Organization

       Marcus Cinemas of Wisconsin, LLC (1% is            Wisconsin
       owned by Marcus Theatres Corp.)

       Baymont Inns, Inc. owns all of the stock of the following corporations:

       Name                                               State of Incorporation

       Baymont Partners, Inc.                             Wisconsin
       Baymont Inns Hospitality Corporation               Wisconsin
       Baymont Franchises International, Inc.             Wisconsin
       Woodfield Refreshments of Colorado, Inc.           Colorado
       Woodfield Refreshments of Ohio, Inc.               Ohio

       Marcus Restaurants, Inc. owns all of the stock of the following
corporations:

       Name                                               State of Incorporation

       Marc's Carryout Corporation                        Wisconsin
       Captains-Kenosha, Inc.                             Wisconsin
       Colony Inns Restaurant Corporation                 Wisconsin
       Cafe Refreshments, Inc.                            Wisconsin

       Marcus Hotels, Inc. owns all of the stock or units of the following
corporations and limited liability companies:

       Name                                               State of Incorporation
                                                           or Organization

       Marcus Northstar, Inc.                             Minnesota
       Marcus Hotels of California, Inc.                  California
       Marcus Hotel Partners, Inc.                        Wisconsin
       Marcus Hotels Associates, Inc.                     Wisconsin
       Grand Geneva, LLC                                  Wisconsin
       Milwaukee City Center, LLC                         Wisconsin
       Pfister, LLC                                       Wisconsin
       HPG Laundry, LLC                                   Wisconsin
       Marcus Hotels Hospitality, LLC                     Wisconsin
       Resort Missouri, LLC                               Delaware
       Resort California, LLC                             Delaware



                                       2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>CONSENT
<TEXT>

                                                                      Exhibit 23


               Consent of Ernst & Young LLP, Independent Auditors

We consent to the incorporation by reference in Registration Statements (Forms
S-8 No. 33-63299, No. 33-55695 and No. 333-93345) of The Marcus Corporation of
our report, dated July 14, 2000, with respect to the consolidated financial
statements of The Marcus Corporation incorporated by reference in the Annual
Report (Form 10-K) for the year ended May 25, 2000.




                                                  /s/ ERNST & YOUNG LLP




Milwaukee, Wisconsin
August 21, 2000
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>FDS -- THE MARCUS CORPORATION
<TEXT>

<TABLE> <S> <C>


<ARTICLE>                     5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCUS
CORPORATION'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER>                                   1,000

<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                              MAY-25-2000
<PERIOD-START>                                 MAY-28-1999
<PERIOD-END>                                   MAY-25-2000
<CASH>                                         2,935
<SECURITIES>                                   0
<RECEIVABLES>                                  14,376
<ALLOWANCES>                                   0
<INVENTORY>                                    0
<CURRENT-ASSETS>                               28,395
<PP&E>                                         898,336
<DEPRECIATION>                                 240,019
<TOTAL-ASSETS>                                 723,776
<CURRENT-LIABILITIES>                          70,471
<BONDS>                                        286,344
<PREFERRED-MANDATORY>                          0
<PREFERRED>                                    0
<COMMON>                                       31,190
<OTHER-SE>                                     294,057
<TOTAL-LIABILITY-AND-EQUITY>                   723,776
<SALES>                                        315,330
<TOTAL-REVENUES>                               352,118
<CGS>                                          164,587
<TOTAL-COSTS>                                  304,030
<OTHER-EXPENSES>                               0
<LOSS-PROVISION>                               0
<INTEREST-EXPENSE>                             17,975
<INCOME-PRETAX>                                35,832
<INCOME-TAX>                                   14,594
<INCOME-CONTINUING>                            21,238
<DISCONTINUED>                                 1,384
<EXTRAORDINARY>                                0
<CHANGES>                                      0
<NET-INCOME>                                   22,622
<EPS-BASIC>                                    0.76
<EPS-DILUTED>                                  0.76


</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
